The following article by Ken Marblestone originally appeared in Smart Business Cleveland.
You’ve identified the perfect buyer, or better yet, someone has approached you about acquiring your business, and you are ready to make that transition. You like the price, they seem trustworthy, and you have a good attorney just in case. You are ready to go.
But are you really ready?
While you are successful and have negotiated and closed hundreds of deals to build your business, selling your company is a completely different transaction that involves unique dynamics, approaches and details. You need an expert to help you.
There are hundreds of aspects, matters of positioning and terms that an adviser experienced in mergers and acquisitions can help with. One of the easiest places to see and understand this impact is in the overall purchase price.
For example, a company is approached by a private equity firm, which proposes an attractive price to acquire the business. While selling the business was not part of the plan, the valuation and obligation to key shareholders require the management team to pursue the opportunity. Management and a key shareholder trustee feel obligated to check the price and cultural fit utilizing an investment banker, who manages a controlled, competitive process to a focused group of buyers. The company ultimately completes a transaction at a price 50 percent higher than expected.
In another case, a closely held business is offered a price that meets the seller’s expectations. The shareholders’ attorney convinces the company to hire an investment banker to check the market price. In the end, the banker helps the client sell it to the same buyer, but at double the price by ensuring competition with other interested parties
Did you ask yourself the key questions? The investment banker will.
- In today’s hyper-competitive environment, do you really know if the price is as good as you think?
- Do you understand how a buyer will view your business? Did you draw attention to those aspects of your company?
- Is there sufficient competition in place to make sure you are getting the best price, terms and partner options?
An experienced investment banker will identify your critical value points, convey those to potential buyers and drive a competitive process to ensure the right value for your business. He or she can also manage concerns about confidentiality and speed to closing.
In today’s highly competitive market, the negotiation advantage is strongly in favor of the business owner if competition is created and the list of potential buyers is carefully crafted.
Creating this list of buyers goes beyond the set of acquirers that you know. The universe of potential buyers has exploded, with a growing number of family offices, private equity firms and current industry players focused on acquisitions. There is no way you can know all the best buyer options without proper research and frequent connectivity with the buyer universe.
Don’t go it alone.
Using strong interest to create a competitive process is just one of the tools investment bankers use to drive value and meet objectives.