If you are considering selling your company, I always advice my clients to first build the best support team they can. That means lining up lawyers and accountants that can provide the kind of advice you need to make the best possible deal. But when you assemble this team, don't forget to include finding the right investment banker as well, as he or she might make the biggest difference in how you benefit from the transaction.
An investment banker's job is to help package your company and publicize the information about it to potential buyers. They also play a key role in negotiating the terms of any sale.
That's why having a good investment banker on your team makes an incredible difference in what for many of us might be the most significant financial transaction of our lives.
But how do you find the best investment banker for your business? The truth is that anyone you might pick probably has lots of experience. While you might have one transaction like this in your life, they might have seen 50 or even 100 of them. Most investment bankers are also well educated, well spoken, and look good in a suit. Quite frankly, it can be really hard to tell them apart.
But I've found that there are a couple of key factors that you can use to help differentiate who might be the best fit to help you sell your business.
1. Find a firm that is appropriately sized for your company.
While it might be tempting to go hire one of the best firms on the planet to represent your sale--someone like Goldman Sachs--the reality is that you wouldn't get their A players to work on your deal if your business isn't worth billions of dollars. In fact, you'd probably get their B or even C players because you're too small for them. Personally, I wouldn't want a freshly minted MBA helping me sell my firm.
A better strategy is to find a firm that specializes in working with middle market or small firms like yours. That ways you will get their A players and they know and understand more of the nuances involved with a transaction of your size. A few that come to mind are Harris-Williams and Houlihan-Lokey.
2. Find a firm with prior experience in your space.
Similar to why you want to find a firm that works with other firms your size, you also want to find a banker who has vast experience working with companies in your market or sector. This is critically important because they will know who the best buyers might be for your business--including both strategic buyers (other companies) or financial buyers like private equity firms. A banker who knows your space will immediately understand what makes your firm stand out or what makes you unique--perhaps even better than you do. An experienced banker along these lines will also speak your language--they will know the jargon of your industry--which will allow you to cut to the chase.
So when you begin to evaluate potential bankers, ask them to provide you with some details about deals they have worked on in your space that might be similar to your own. While they might not be able to share confidential info, you should quickly get a sense of whether they know your business or not.
3. Find one that is flexible in how they price their services.
Many investment bankers stick to a rigid template when they price their services. There might be a fee up front, ranging from $50,000 to $100,000 or more, to pay for paperwork and due diligence. Then, they might set a fixed fee, say 1% to 2%, of the deal value. The downside of this approach is that they have no real incentive to push the price of the deal higher in such a way that you, the seller benefits, while they make more money as well.
That's why when it comes to choosing the right banker for your deal, find someone who is willing to put some skin in the game. You might set a sub-standard fee based on selling the company for your minimum expected sale price. But for every 20% more they can ratchet up the price, the more of the proceeds they can collect as well. In other words, you both win more by encouraging them to work harder at finding a buyer willing to pay a higher price--or by negotiating a better deal. You are both aligned in your interest, which is a beautiful thing, especially when you're trying to sell a company for its maximum value.
So, as you begin your dance with finding an investment banker to help you sell your business, consider these three factors--are they the right size, are they experienced in your industry, and are they willing to create alignment on their fees--before you make your choice. If you can find someone who meets all three criteria, then you will have found someone who can serve as a true partner in helping you sell your company.