This article was written by John Rogers, Senior Associate at The Bonadio Group & Dave Dinolfo, Partner at The Bonadio Group.
Selling a middle-market business can be a complex and time-consuming endeavor. Hiring an investment banker to help manage the transaction not only alleviates some of that burden, but also provides the opportunity to increase sales prices received by sellers in an M&A transaction.
Business Owners Can Enjoy Returns Up To 25% Greater by Using an Investment Banker
According to a study by Harvard Law School, business owners who engage with investment bankers enjoy returns up to 25 percent greater than those who navigate the market alone. Additionally, Fairfield University conducted a survey of 85 middle-market business owners who sold their business with the assistance of an investment banker; the study found that investment bankers added value in the sale transaction, as 84 percent of respondents cited the final sale price as being equal to or higher than the initial expectations.
Beyond increased returns, business owners that stand side-by-side with an investment banker feel more confident throughout the assessment, planning, marketing, deal making, due diligence, and transaction closing phases. Some of the additional benefits an investment banker adds to a seller during the M&A process include:
Investment bankers provide an outside, independent point of view to assist the business owner in making informed decisions during the selling process.
Investment bankers are well-connected with capital providers and investors (i.e., private equity, venture capital, entrepreneurial buyers, strategic buyers, etc.) that would not otherwise be brought to the table if a seller were to go to market alone.
Investment bankers have access to a variety of real-time market databases to identify potential buyers and comparable transactions. A more diverse and robust potential buyer identification process can increase the number of bids and bolster the negotiating position of the seller.
Investment bankers create professional marketing materials for potential buyers that highlight the key value drivers of the business.
- The outreach to potential buyers can be cumbersome and time-consuming. Utilizing an investment banker can alleviate this stress and consumption of internal company resources. Investment bankers interact with potential buyers on behalf of the seller and maintain confidentiality.
- An investment banker provides added credibility. When there is a sell-side advisor, this is an added layer of professional expertise the buyer must contend with.
- Investment bankers assist sellers to evaluate and negotiate offers. Deal structure is crucial, and a well-negotiated deal structure will maximize value. It’s not always the selling price, but the deal structure that makes the difference. The highest bid is not always the most advantageous offer for the seller and leveraging the expertise of an investment banker to seek the best bid can prove to be valuable.
- Investment bankers facilitate the due diligence process. They typically host virtual data rooms, track diligence requests, coordinate management meetings, and ensure things progress smoothly. They work with attorneys and other professionals on the deal team to ensure that the final definitive agreements are completed, and the deal is successfully closed.
Research indicates that the knowledge, experience, market reach, and credibility of an investment banker leads to a higher selling price, while reducing the burden and stress of the seller.
The Bonadio Group’s Investment Banking and Transaction Advisory team has 30+ years of investment banking experience. If you’re considering a sale of your business or have any questions on the contents of this article, please do not hesitate to reach out to our trusted experts to discuss your specific situation or visit https://www.bonadio.com/our-services/business-advisory/investment-banking.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
