Business owners face a multitude of complexities during the process of selling a company. For this reason, many owners enlist the services of an investment banking firm to guide them. However, the style and capabilities of investment banks vary widely, and choosing the wrong firm could cost you dearly.
When the time draws near to sell your company, it’s important to take time and get to know the M&A team that will play a significant role in your future. As with any relationship, finding “the one” might take awhile, but there are three key qualities that you should insist upon when you hire an investment banking firm: unwavering trust, utmost confidentiality and experience negotiating premium deals.
Insist upon unwavering trust
You may be wondering: How will I know that the firm I hire is trustworthy? While there are no guarantees in life (or selling a company), there are signs of trustworthiness most business owners recognize as the owner-investment banker relationship evolves over time.
One of the most important signs of trustworthiness is that a reputable firm won’t pressure you to hire them on the spot. They want to learn as much about you, your business and your goals as you want to learn about the investment banker. This invaluable insight enables the firm to hone in on the type of buyer and deal terms that will make the most personal and financial sense for the business owner. If you encounter an M&A firm that rushes you to engage their services, without understanding your history and goals, they may not have your best interests at heart.
Our team recently engaged an oil & gas manufacturing company I first contacted by telephone more than a year-and-a-half ago. During our initial conversations, the owner and I discussed the ins and outs of selling a business, pitfalls to avoid and steps he should take to prepare for the transaction. We also talked at length about his business and plans for the future. It was only after several months had passed and numerous phone conversations that we arranged to meet in person.
Insist upon complete confidentiality
When a business owner is contemplating a liquidity event that includes a partial or total sale of their company, complete confidentiality is essential until a deal is finalized. Respected investment banking firms know that keeping information pertaining to a sale under wraps is critical in preserving customer confidence, employee focus and competitive advantage.
Discreet investment banking firms will also make a point NOT to broadcast the fact that they have a relationship with prospective sellers. When the aforementioned client met with the Allegiance team, we arranged for him to meet with us away from his home base, so as not to raise suspicion. And, we kept all meetings and correspondence in strictest confidence, so nonessential parties wouldn’t be tipped off that a deal was potentially in the works.
Along with reinforcing his trust in our team, these confidential, face-to-face meetings also gave the business owner the opportunity to learn more about our processes, the steps we would take to sell his business and what options were available to him. It wasn’t until this time that the business owner acknowledged he needed more guidance than he initially thought regarding selling his company.
Insist upon experience negotiating premium deals
There are many important considerations that a business owner typically weighs during the sale of a business (cultural alignment, leadership, future involvement, family, employees, etc.). However, at the end of the day, most owners want a premium price for their business.
While finding an investment bank that has a proven track record of securing premium pricing for its clients is important, reputable firms know that selling a business isn’t simply about negotiating the best price. They have proven experience in the fine art of structuring a deal and negotiating favorable deal terms when the time is right.
In the case of the manufacturing client I mentioned earlier, the business owner was ready to sell his company shortly after we concluded our first round of face-to-face meetings. We knew, however, it wasn’t in the best interest of the client to go to market immediately, so we advised him to wait. Based on our industry experience and connections, as well as our seasoned insight into the prevailing economic backdrop, we remained confident that he could secure a higher price and more favorable deal terms if he held out for another 10 to 12 months. Because of the nurtured trust that we had developed over time, the client made the decision to follow our direction. We anticipate a valuation substantially higher in the current marketplace than that which would have been achieved previously.
Hiring an M&A firm shouldn’t be taken lightly
In order to attain the best possible price and deal terms for your company, it’s important to spend time getting to know the investment banking firms who are knocking on your door. Do they have your best interests at heart? Are they extremely protective of your conversations and confidential information? Have they successfully closed premium deals with other companies in your industry? Only when you can answer “yes” to all three questions, will you know you have found “the one.”
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