February 21, 2024

Unlocking Your Business's Full Value: The Power of an Investment Banker in a Sale

By Phillip Cooper - Managing Director, Investment Banking

After years of building and running a company, you might consider an exit to retire or pursue your next venture. Like many family or founder-owned businesses, your company may constitute a substantial part of your net worth. Selling it can impact how you spend your golden years or the amount of wealth you can pass down. If this situation sounds familiar, you might be exploring how to navigate the complex world of mergers and acquisitions. While you could go through this process solo, hiring an investment bank and equipping yourself with a team can be a strategic decision with numerous benefits.

According to sellers, here are seven of the most valuable services provided by bankers in a transaction:

Maximizing Value.  A University of Alabama and Portland State University study involving sell-side transactions over a 20-year period estimated that sellers who hired an investment banker received valuation premiums of around 25%, and another study by Northern Trust Business Advisory Services found that sellers using an investment banker obtained an average EBITDA multiple 1.5x higher.  This is typically done by creating a competitive bidding process among potential buyers, driving up the price, and creating a sense of urgency to complete the transaction.

Expertise.  Selling a company involves intricate financial and legal processes that can be overwhelming for most business owners. An investment bank has a team of experienced professionals who can guide you through every step of the process.

Marketing and positioning. Investment bankers can help create compelling marketing materials, including confidential information memorandums (CIMs), teaser documents, and presentations, to communicate the value proposition of the company effectively to qualified buyers.

Deal structuring. Bankers can assist in structuring your transaction in a creative way that maximizes tax benefits, minimizes risks, and achieves the company’s strategic objectives, such as securing favorable earn-out provisions, employment contracts, or non-compete agreements.

Credibility.  Having a reputable investment bank as your advisor can signal to potential buyers that your company is serious about the sale and has taken the necessary steps to ensure a smooth and successful transaction. This can create a sense of trust and confidence among potential buyers, increasing the likelihood of a favorable deal.  Having a banker on your team can also keep buyers honest and prevent 11th hour renegotiations of the deal, something that is not uncommon in proprietary negotiated transactions.

Timesaving. Selling a company can be a time-consuming and complex process that requires significant attention to detail.  By entrusting the sale process to an investment bank, you can free up your time and focus on running your business, ensuring that its operations continue to thrive during the sale process.

Access to capital. Investment bankers can leverage their relationships with financial institutions, private equity firms, and other sources of capital to help secure financing for potential buyers, which can facilitate the transaction and potentially result in a higher purchase price.

In conclusion, an investment banker will be responsible for representing your interests as a business owner in the sale process, so you need to have confidence in their ability to negotiate on your behalf and achieve the best possible outcome. Selling a company can be an emotional process, so having a good working relationship and trust with your investment banker can help alleviate some of the stress and uncertainty associated with the transaction.  Pick someone that you believe can fulfill these responsibilities but also whom you would enjoy working with.

About The Author

Phillip Cooper is a Managing Director of Palm Tree’s Investment Banking practice, based in the Dallas/Ft. Worth area. He has over three decades of experience in investment banking, commercial banking, and corporate leadership. Mr. Cooper has raised capital for clients, advised on M&A transactions, served as a principal on both buy- and sell-side M&A deals, and co-founded and operated a telecom firm. As an investment banker, his transactions have ranged in size from $10 million to nearly $300 million.  He has worked with clients in a variety of industries, including industrials, manufacturing, business services, energy, food and beverage, communications, transportation, consumer/retail, and aerospace and defense sectors, among others.

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