10 Questions to Ask When Choosing an Investment Banker – Part 2

This article is a continuation of the 10 Questions to Ask When Choosing an Investment Banker series – see part 1 for more.

Choosing a qualified, experienced investment banker with relevant transaction experience to represent your company might be the most important decision you make to ensure a successful sale of your business. If you choose poorly, the downside is serious, as even well-meaning bankers can derail a deal with bad advice, poor judgment, or a misrepresentation of their skill-sets, the quality of their relationships, negotiating prowess, and overall transaction experience.

In this post we focus on examining the ‘softer’ side of doing a deal. Beyond how much money an advisor thinks your business is worth, a number of other factors should influence your decision to work with a particular firm. We examine how non-transactional value-adds can be extremely beneficial and how chemistry and cultural fit influence the ability of a banker to work well with your business. No matter how much it’s “just business,” the people involved will play a huge role in the final outcome of a deal.

Non-Transactional Value-Add

You may be surprised to learn that many M&A advisors – particularly specialists in your industry niche – offer a lot of value-add in your initial conversations above and beyond the discussion of the actual sale process itself. After all, these bankers are constantly talking to CEOs like you — learning about their businesses, industries, challenges, and growth opportunities — and should have a great understanding of the competitor, supplier/vendor, or customer landscape in your space. If you’re still in the exploratory stage of a sale process, top-tier advisory firms will look for ways to add value to your business even if you ultimately don’t pursue anything now, or have a longer exit horizon. These firms are looking to build a long-term relationship with you now so that when you do finally decide to sell, you’ve already built a trusted relationship with them and you feel comfortable hiring them to represent you:

• What growth opportunities in my industry can I pursue in the next few years leading up to a sale? Since a banker’s fee is ultimately tied to the price they help you get for your business, they shouldn’t be shy about offering advice and insights to help you maximize your company’s growth and value in the 1-3 years preceding a sale. In addition to macro-level information on your industry and the broader economy, these bankers may be able to introduce you to potential customers or partners that they have personal relationships with.

• What else can I do to prepare my company for a sale? There are often a number of areas in which CEOs find themselves underprepared to pursue a sale, some of which can take months if not years to remedy. Whether it’s ensuring that a strong management team is in place, that your customer base is sufficiently diversified, or that your financial statements and accounting practices are in proper order, good advisors can help you with a quick “diagnostic” to understand (and begin addressing) the issues that prospective buyers may find with your business.

Chemistry and Cultural Fit

Last but certainly not least, the personal chemistry between you and your banker is an oft-overlooked factor when considering whom to hire. Think of your banker as someone who ultimately serves as an extension of you — someone who acts on your behalf in meetings and negotiations with buyers. You’ll spend many, many hours with this person over the course of what may be an emotional six to twelve months — how confident are you that this is someone who understands you, your business, and your goals?

• Does this banker understand my personal goals and what motivates me? Private company entrepreneurs sell their business for innumerable reasons, many times for reasons that are very personal. Though you certainly want to sell your business for as much as possible, the purchase price isn’t everything — ask yourself, does this banker understand everything else I want out of the sale, both personally and for my business post-transaction?’

• Do I trust this person? This is a question only you can answer, and will probably take several conversations and meetings with the banker to answer confidently. This again speaks to the importance of building relationships with potential advisors well in advance of actually initiating the sale process. If your banker isn’t someone with whom you feel comfortable sharing problems about your business, then you haven’t found the right banker yet.

A sale process is going to have ups-and-downs and there are going to be challenges. Buyers are going to ask difficult questions, potentially disagree with your views of the market, and challenge your assumptions. Carefully researching and choosing an experienced advisor who can anticipate these challenges and proactively address issues will help put you in a better position as you begin meeting with and negotiating with potential buyers. In addition, the best advisors are those that not only have the right experience, but also have demonstrated the ability to adapt to changing market conditions and apply refined techniques for the unique nuances of your sale process.

In the end, the right advisor must have unique a combination of transaction skills, relevant industry experience, trustworthiness, and commitment to your success. If you focus on the above questions, you have a better chance of choosing the right advisor to sell your company.