Some owners choose to attempt to sell their business and/or raise capital without an investment banker. Sub-optimal results can occur in terms of both price received/capital raised and the other non-price related terms under which the transaction is executed.
Many of the largest companies in the world use investment bankers to execute their transactions. Why? Because skilled investment bankers have the knowledge, experience, contacts, analytics and expertise as well as the ability to create a process to potentially improve your results (price and non-price related) sometimes in excess of the cost of hiring an expert investment banker. In addition, the hiring of an investment banker allows you to focus on running the business so that your time and company’s results are not significantly impaired during the sometimes long, trying and voluminous process of executing a transaction.
Larger companies and private equity firms regularly contact private companies to “make an offer”, “let us see your financials” and “let us come by and visit”. A typical goal of such inquiries is to buy your business at the lowest price possible and favorable non-price terms to them. These large companies and private equity firms can be very sophisticated and many have expertise in valuing businesses and executing transactions. The small and medium-sized company generally does not value businesses and execute transactions for a living. The average small and medium-size business is playing a sport in which their opponent (a larger company or private equity firm) is a professional and the selling company is usually an amateur. These professionals often want to “cut a deal” with you before a professional investment banker can show you the potential true value of your business and potentially create the materials and processes by which you may attain those possible higher values. Skilled investment bankers may improve the price in the sale of a business. Such benefits can be in excess of the cost of hiring an investment banker. Then, there are the potential “hidden costs” of not hiring an investment banker such as poor contract terms on representations and warranties, limitations on liability, escrows, baskets, non-compete agreements, employment agreements, consulting agreements, lease terms on buildings owned by the sellers/owners; among many others.
When you need an serious medical operation, you usually find and hire the best professional you can afford. When you sell a house, you usually hire a real estate broker that knows the neighborhood and how to market the house, schools, and positive points of the general area. Yet, some private business owners will attempt to sell their most important asset, their business, because ” there is already an offer on the table and it’s enough for me to retire on”. That offer, can be far less than the true value as it possible for an unsolicited offer from a buyer to be either a "lowball" offer to buy your company "on the cheap", or a “high ball” to get you hooked and then, over time, reduce the price and dictate terms once they have gotten you "too far down the road to invite other buyer groups to compete with them." Please don’t make these mistakes. We recommend that you hire a professional for the most important transaction of your life, even if that investment banker is not William & Henry Associates.