Most private company owners are used to doing things for themselves. Many founded the companies that they run, and they took care of sales, operations, and financing alone before their company grew large enough to have an organization to manage those functional areas. Entrepreneurs are successful because they are versatile and are unafraid to take on the challenge of doing what needs to be done at each stage in the life cycle of their company. So it’s natural for company owners to want to take on the task of selling their company as one more personal challenge that they can do as well as an outside expert.
As a result, 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.
Reason #1 – Minding the Business
It typically takes between 6 months to a year to complete the sale of a private company. A successful sale depends on the company continuing to perform at or above its projected earnings throughout that process. Falling behind the projection will expose the owner losing the deal in the process, or having to reduce the price to keep the deal going.
An owner who tries to manage the investment banking process while continuing to be responsible for the company’s performance can get trapped by conflicting demands on time. It is essential for the owner to stay focused on the company’s current earnings record. Deals take large blocks of time in certain phases. It is better for the outside dealmaker to carry these tasks instead of taking the owner away from his primary duties. Owners who try to manage this part of the process can risk both the company’s current operating results and the deal itself.
An outside M&A advisor will stay focused on the deal while the owner stays focused on running the company’s day-to-day operations.