InSight

Exit and Growth Strategies for Middle Market Businesses

The Value of Middle Market Investment Bankers

By Robert St. Germain | Sep 03, 2020

During these challenging COVID-19 times, most long-tenured business owners are likely shouting, if not out loud then in their minds, “Oh no, not again!!!” as they are reminded of the Great Recession of 2008 and the many years it took for them to recover from that downturn. Today’s uncertainties may have them thinking that it is finally time to consider an exit.

The decision to exit from a business is very personal and generally results from answering questions like: “Do I have the energy/interest/health to continue running my business?”; “Do I have tolerance for the continued financial risk of supporting my business?”; and “Do I have a well-defined post-close life plan that I know I would enjoy as a ‘former business owner’?”.

When answering those questions leads to the decision to sell the business, the typical next question is “Should I sell my business on my own or hire an investment banker to help me do what I (likely) have never done before?”

The answer to the question of using an investment banker (IB) or not can be informed by revisiting a study titled The Value of Middle Market Investment Bankers published by Fairfield University in October 2016. The study’s purpose was to answer two basic questions of its own: a.) Do IBs add value to the business sale process?; and b.) Which IB service do business sellers value most?

The study surveyed 85 business owners who utilized IBs to sell their privately held companies or majority stakes therein for between $10M and $250M during the period 2011 to 2016. The results were quite illuminating.

To the study’s first question of whether or not IBs added value to their respective sale processes, 100% of the surveyed owners indicated their IBs did add either moderate (31%) or significant (69%) value to their processes and the achievement of successful transactions.

To the study’s second question, the owners were asked to rank by value to them eight specific services provided by their IBs. The owners ranked first and foremost the management of the complex M&A process and its associated strategy setting as the most important service of their IBs in support of their companies’ sales.

For the uninitiated, that M&A process and strategy setting typically include: a.) establishing pricing/valuation expectations; b.) crafting compelling marketing documents; c.) identifying all suitable strategic and financial potential buyers; d.) conducting the outreach campaign to those potential buyers; e.) establishing a virtual data room to house due diligence information appropriate for each stage of the process; f.) creating and maintaining competition between potential buyers to maximize shareholder value in the outcome; g.) calling for and negotiating indications of interest (IOI) to down-select to the sub-set of most viable buyers; h.) managing the post-IOI seller/buyer interface to include conference calls, management presentations and on-site visits; i.) calling for and negotiating letters of intent (LOI) to down-select to an exclusive potential buyer; j.) facilitating final due diligence during the post-LOI period; k.) assisting in the negotiation of the sale/purchase agreement and its associated documents; and l.) maintaining confidentiality throughout the entire process.

If participating in a professionally run sale process to maximize the return on your life’s work is of interest, contact your local CFA office, which is staffed with senior, securities licensed investment bankers operating in the context of a worldwide organization with over six decades experience assisting business owners sell their companies.


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