Selling Your Company: 5 Tips to Demystify The M&A Investment Banker Selection Process

You have spent many years and countless hours building your business and it’s your core asset.  You may be the sole owner or have partners in the business and/or outside investors who helped provide capital.  As an entrepreneur and a founder you’ve heard all along that selling your company could be your out, or exit strategy; now you’ve reached a critical juncture and are contemplating a sale.  But how?  To whom?

Before we talk about choosing an M&A banker, let’s look closer at whether you are ready to sell your business.

Are You Ready to Sell Your Business?

·      Is your business of sufficient size and scale to warrant a formal sale process?

·      Have you created a management team ready to take on greater responsibility?

·      Do you want to stay on for a few more years as CEO or Chairperson?

·      Do you have a successor you have been grooming?

·      Are you ready to give up control?  Are you contemplating a minority investment or a change of control?

·      Have you been preparing your business and its financial statements for this event?  Have your financials been reviewed or audited over the past 3 years?

·      Have you maximized the value of your business?

·      Are you realistic about its value?

·      Are you ready to work with a team to do the necessary up-front preparation to showcase your business?

If you can answer “yes” to most of the above, and especially to the last question, you are ready to consider choosing an M&A investment banking firm to guide you through a sale process.

5 Tips for Choosing Your M&A Investment Banking Team

Successful company sales are achieved through teamwork, collaboration, diligent planning, focus, and execution. Your M&A investment banking team is one of the most critical pieces of this process.

Let’s say your business is in a specific technology vertical.

1) Niche Specialty Firm, or Broad-based Technology Firm?

There is no right or wrong answer to this question, but here’s what you should consider:

·       Look for a team with senior partners who have diverse backgrounds and experience and a demonstrable track record of completing transactions. They should have strong reputations and be able to understand the fundamentals of your business. Do they seem like they will serve you diligently, or do they treat you like just another transaction?

·       I think it’s most important that the firm understands that its client is YOU. Larger firms are more likely to owe favors or focus on their buyers and treat you like a trading chip.

·       Specialty firms can tend to have a few favorite buyers and may not pursue a broad process to find the right buyer for you.  If you’re hearing: “I know the perfect buyer” or “I’ve sold a few businesses to XYZ and the deals have all worked out”…You should be asking: Perfect for whom? Worked out for whom? This may not be the right firm for you!

·       It’s all about the people. This may sound trite, but it’s true. Can you build a rapport and work with these people for six months or more? Different backgrounds yield different dimensions in thinking. A wise Morgan Stanley client once said to me, “I like that you think creatively. Everyone else in your industry thinks the same way!” Be open to fresh ideas and perspectives.

As I alluded to, there should be good chemistry between you and your prospective I-banking team. They should inspire confidence and bond with you.

2) Seek the Best Outcome

Your team should be focused on seeking the best outcome. This may seem obvious, but it isn’t always the case. They must have expertise in running a broad process to showcase your business to relevant targets to create competitive bidding.  It’s an auction, remember, and the aim of any blind auction is to have multiple parties competing over the same asset – your company.  These include domestic and international corporations, private equity and family offices.  Depending on certain desires you have, some may be a better fit than others…more on this later.

Another point to be sure to clarify is whether the “A” team you are hiring has the bandwidth to focus on your deal.  You do not want the customary “bait and switch” where they pass you off to some junior folks after they win the deal.

Throughout the preliminary discussions you should feel the team is truly LISTENING to you and trying to understand your objectives and desired outcome.  Factors such as selling a minority position, majority sale and your ongoing role for what duration are all important elements that should set the stage. The I-bankers should provide constructive feedback and tailor the process they will undertake accordingly.

3) Framing the Story

It is imperative the team understands technology, trends and positioning.  Framing the business as important within its ecosystem and being able to paint a vision for its future growth potential and expansion are essential to appealing to potential buyers.  This includes your current market segment as well as thinking about adjacent market segments, both vertical and horizontal.

As you present to different groups, e.g., a strategic corporate buyer vs. a private equity firm, there are different elements which need to be highlighted to make each one feel they MUST own you.  For a strategic buyer it may be showing that you are the missing link in their organization that could help them win bigger deals or for a private equity firm it may be how you can integrate tuck-in acquisitions and become the “big fish” in your market segment.  It takes careful planning to understand what is driving a given potential buyer and customizing your benefits to them.  You always want to present yourself as a Must Have vs Nice to Have company.  It’s a tough business climate and everyone wants a leader with a vision…it may just be capital which has hindered you from taking on a bigger trajectory to date and the new owner can provide the fuel.

4) Collaborative Third-Party Specialists

Getting to “sold” requires a collaborative effort with a group of top-notch advisors and the earlier the better.  A strong M&A banker should be able to introduce you to, on an as-needed basis, a presentation coach, marketing/sales specialists, and financial, tax, legal and wealth guidance advisors.  The latter will help you with the “you” side of the estate planning.

Be mindful that going through a sale process is draining and requires you to focus your attention on achieving financial targets during the process.  Your I-bankers are there to guide you with establishing realistic and defensible projections (there may be earn-outs).  The I-bankers will ensure data room and presentation materials are ready to go at launch.  They will be there throughout to provide attention to detail and adherence to the game plan set forth.

It’s all about staying motivated, inspiring confidence and persevering through ups and downs.  A successful outcome will come from all this hard work, diligent planning and execution.

5) Pitfalls to Avoid

It may sound simple to go it alone – perhaps you’ve had inquiries already.  Be mindful that selling your company is a full-time task to do it right and it’s not your area of expertise.  A lone buyer will have all the leverage and will low ball your value.  It’s also harder to recover from a botched process.

Also please do not fall for an M&A banker who “hypes” you with unrealistic valuations and timeline.  There’s an old M&A banker saying – “Never lose a deal on proposed valuation” because what they tell you matters not – it’s what they can truly deliver that matters, and just because they say they can get $1.5m does not make it so. Valuations and relevant comparable company exit values matter.  Lastly, do not take your eye off the ball and lose momentum in your business during the process, as the outcome will suffer.

Success Comes to those Who Earn it

Selling the company you’ve built is a big decision. It’s also a lot of work and requires a great deal of attention. To ensure success, you need teamwork, collaboration, planning, focus and execution. You also require the skillset and knowledge of an experienced investment banker. It’s a team sport—choose your M&A banking partner wisely!