Private Capital Raising Process & Role of Investment Banker

Where Do Owners Turn for Help When

Considering the Sale of their Business?

When considering a sale of their company, business owners quickly realize they may need help. The process is time consuming (often taking six to 18 months and 1,000 - 1,500 man-hours). It is complex. It poses significant risk – risk of deal failure, risk of receiving a low value, risk of important confidential information getting into the wrong hands.

Additionally, owners often recognize that prospective buyers are sophisticated, very well versed in acquisitions.  The owner needs his own advocate to balance the scales. Ultimately, owners realize selling a business is not their core competence and often they decide to engage a professional to handle the company sale process.

But, where do business owners to turn for help?  You don’t need a heart surgeon until you have heart problems.  Likewise, a business owner does not need the services of those who sell businesses professionally until they decide to sell. Therefore, owners rarely cross paths with these professionals.

Who Sells Businesses Professionally?

Those who sell businesses professionally are often called investment bankers, merger and acquisition advisors, or business brokers.  The type of professional depends on the size of business being sold and the sale approach.

Investment Bankers

Investment bankers generally work at large “bulge bracket” Wall Street firms, which serve both publicly traded companies as well as large private companies. In addition to providing mergers and acquisitions advisory services, they provide a long list of other financial services such as equity and debt underwriting, sales and trading, research, retail brokerage and lending.  They typically require minimum deal sizes of $100-$150 million (and often are much larger) and charge commensurate large minimum fees. When selling businesses, they generally run a professional and aggressive marketing process contacting a wide swath of potential buyers.

Business Brokers

On the other end of the spectrum, business brokers work with owners of small, private businesses with deal sizes less than $5 million. They are generalists and often employ their own personal networks and listing services to post their clients’ companies for sale.

Merger & Acquisition Advisors

Merger and acquisition advisors play in between “bulge bracket” investment banks and business brokers. For M&A advisors, deal sizes generally fall in the $10-$150 million range. Their approach to selling companies is very much like the “bulge bracket” investment banks – professional and aggressive. Indeed, many M&A advisory firms were started by those who were previously with a “bulge bracket” investment bank.

Generalist vs. Boutique Merger & Acquisition Advisors

These M&A advisory firms are further classified as “generalists” or “boutiques”. Generalists work with a wide variety of clients and do not focus on any particular niche. Boutiques specialize in certain niches, such as an industry, geographic area or company type or size. For example, I specialize in working with commercial and industrial clients. Others may specialize in healthcare, technology or consumer, etc.

M&A Advisory Services

Regardless of whether or not they are “generalists” or “boutiques” merger and acquisition advisors match businesses for sale with prospective buyers.  They provide critical advice on corporate mergers, acquisitions and divestitures as well as debt and equity financing. Specifically, M&A advisory services typically include:

  • Business valuation;
  • Preparation of a marketing materials, including the short “teaser” and the expansive confidential information memorandum, which includes important details buyers need to know about the business;
  • Identification and research of prospective buyers
  • Initial contact, solicitation and on-going communications with prospective buyers;
  • Negotiation of purchase and sale agreement and other deal-related agreements;
  • Management of the due diligence process; and
  • Resolution of transaction issues that arise throughout the process.

Bottom line:  Owners Can Get Help

When Selling Their Business

Selling a business is time consuming and difficult. It takes a great amount of effort and expertise. Since the business is important to the owner’s wealth and often considered the owner’s “baby”, a company sale needs to be handled right. Engaging the right professional to handle the company sale takes a load off the owner and dramatically improves the probability of a successful transaction.  Importantly, a professional can add tremendous value to the seller’s business - measured in millions.  Why? A professional can often achieve a higher price than an owner can achieve by himself. Why take the risk of NOT hiring a professional to handle the sale of your company?

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