What’s an Investment Banker’s Role in a Business Sale?

When you think “investment banker,” does your mind immediately jump to Wall Street? Many minds do. Truth is, investment bankers also have a substantial presence on Main Street. As a matter of fact, they’re absolutely critical in middle-market company sales.

Investment bankers can immeasurably enhance the sale of privately held businesses, providing valuation counsel, identifying the best potential buyers, creating a competitive auction and negotiating deal terms. The benefits of working with them are measured in both money and time. So how do investment bankers help obtain the highest dollar value for companies? As we’ll see, through a streamlined, efficient sales process.

Performing on the Sale Stage

Let’s say the owners of Vendme Co. want to sell the business. They retain an investment banker — let’s call the firm Greenbacks & Lucre — that takes four big steps toward the company’s sale:

  1. Perform a preliminary valuation. This assessment focuses not only on Vendme’s financials and strategic positioning, but also on its competition and conditions within its industry segment. This essential step benchmarks the company’s market worth and helps its owner establish realistic expectations.
  2. Identify and weed prospects. Greenbacks is now ready to identify a pool of potential buyers most likely to pay top dollar for Vendme. Of course, it will also check other similar industries because the right buyer is sometimes found outside the seller’s usual operating environment.
  3. Now the weeding can begin. Greenbacks narrows the buyer pool to the most qualified candidates, based on their strategic alignment and access to capital. Only when the final pool of prospective buyers has been identified will Greenbacks disclose Vendme’s financials and other information. By being judicious in its contacts and working at the highest levels of a buyer organization — presidents and CEOs, primarily — Greenbacks helps safeguard Vendme’s confidentiality while conveying the strategic fit to key decision-makers.
  4. Hold an auction. The prospective buying pool has been drained of unqualified parties — now what? Greenbacks immediately shifts to the crux of the sales process: creating a competitive auction. By maintaining a tight timeframe throughout the bidding process, sustaining active contact with prospective buyers and conveying bid information, Greenbacks heightens potential buyers’ sense of urgency and Vendme’s perceived value.
  5. Negotiate the deal. Greenbacks’ work isn’t done when the bidding is through and a successful buyer emerges. It still has to negotiate the best deal possible for Vendme. To that end, Greenback’s negotiator will address issues such as type and amount of consideration to be received, contractual terms, extent of the owner’s ongoing involvement and retention of key employees.

Paving a Smooth Road to Sale Closing

The story ends happily: Greenbacks secures the most advantageous deal for Vendme — and the highest sales price, too. Although Greenbacks and Vendme aren’t real, the good results reaped from this process assuredly are. Please call us; we can help you identify prospective buyers, create a competitive auction and negotiate lucrative deal terms.