As I mentioned in my last blog post, some company owners choose to handle the process of selling their company themselves. Some of these owners successfully sell their company for a high valuation. Many of them successfully sell their company, but for a lower price or on weaker terms than they may have deserved. And too many of them aren’t successful at selling at all.
Company owners hire investment bankers to manage the process and represent their interests in the sale of their companies. There are a number of reasons why smart owners pay investment banking fees for these services. The first reason investment bankers are hired to sell a company is it allows the business owner to focus on the day to day operation of the company.
Reason #2 – The Buyers
Owners tend to think of buyers that they know. They think of their close competitors and other companies they see in the industry. A high-value sale requires finding buyers that have three characteristics: (1) they can realize a higher value from the company than the owner can realize today; (2) they have the cash and other resources to close a deal at a fair value; and (3) they are experienced at closing deals. Just because companies come immediately to mind, or are convenient, does not mean that they are the best buyers.
A good investment banker will research and contact 300 to 400 potential buyers to find several that are qualified and ready to buy. The advisor has access to research and to personal connections that will be used to identify a bigger pool of qualified buyers than an owner can readily access.