6 Crucial Considerations Before Hiring an Investment Banker

Thinking about selling your business?

The first step is to hire an M&A advisor or investment banker (we’ve written before about why you don’t want to fly solo when it comes to a business sale).

But how do you evaluate whether an advisor is right for you? The realities of the current market mean that the best advisor for your sale goals may not be the one with the office down the street. Luckily, the wonders of technology and modern travel mean it’s easy to evaluate multiple potential advisors before making a decision.

Here are 6 important considerations before hiring an investment banker or advisor.

1) Experience in your industry

Ask for concrete examples of their record working with companies in your industry. The closer to your specific industry niche and business model, the better. Make sure the transactions are relatively recent as well. Ask the banker to connect you with a few CEOs they’ve worked with as references — past clients will always be the best endorsement (or the most telling red flag).

2) Past transactions of your size

“It’s important to choose a firm whose direct experience includes deals at your price point,” says Karl Edmunds, director at SDR Ventures. “You want your investment bank to have the staff to serve you and to be willing to dedicate the necessary resources to close a deal in line with your company’s value, regardless of the other deals the bank might be working on. Equally important, your advisor should understand your business — your operations, geographic coverage, and the competitive landscape of your industry.”

3) An understanding of your unique goals

“Assuming the M&A advisor has sufficient technical knowledge of the company’s marketplace, I believe the most important factor is the ability of the advisor to keep the focus of the transaction on the personal and professional goals of the CEO/owner,” says Tom Schramski, president and managing partner of Vertess. “At the outset, the advisor should clearly inquire about these goals before talking about financials and valuation. These goals provide critical information related to buyer selection and increase tactical flexibility as the deal progresses.”

SDR Ventures’ Edmunds agrees that owners “should have a sense of the bank’s intangible qualities and its deal process. While ultimately all business owners are after the best valuation, it shouldn’t come at the expense of due diligence. Too many investment banks become fixated on price and then, when they find a buyer, they try to convince you, the business owner, that the deal represents market value, and that the buyer is the only one out there. You should be assured that your investment bank has your needs and objectives in mind, not just its own.”

4) The right approach to valuation

First things first: Just as you wouldn’t go to a job interview without being able to clearly article your skills and potential value-add, so you shouldn’t meet with a potential advisor without a point of view on your valuation expectations. This doesn’t mean that point of view can’t change after further discussion and research with your banker — it very well may. While evaluating a banker at the outset, consider the following questions:

• Does the banker provide specific information on the current market conditions for your industry?
• Do they provide concrete examples of how much other similar businesses have sold for?
• Do they provide examples of ways in which you might be able to maximize your valuation before coming to market, or do they want to rush you into a sale as soon as possible? Assuming that it fits with your timeline, a good banker should be open to playing the long game and helping you to optimize your financials, management structure, and other factors before sending your business to market.
• Do they explain clearly how working with them will help maximize your valuation, in a way that feels more genuine than salesy?

5) Something to bring to the table

This one’s simple but crucial. Whether you meet the banker in their office, at a restaurant, or over the phone, whether the meeting lasts 30 minutes or three hours, you should walk away feeling like you’ve gained a new perspective on your business and your prospects for sale. This is particularly true for the first few meetings, when you may still be relatively green to the sale process. If you come away from a meeting without learning anything new about exogenous market conditions, valuation considerations, or the transaction process, look elsewhere.    

6) Strong ethics

“The single most important factor is honesty,” says Sean Hutchinson, co-founder and CEO of Strategic Value Advisors. “Exceptional investment bankers form strong relationships with their clients and help them craft a legitimate and defensible story without drifting into spin. Find a banker who doesn’t hesitate to give you clear and courageous advice even though they might get fired. You’ll know you’re working with someone who can get you to the finish line.”