If you are a business owner, selling your company is the culmination of many years of hard work and commitment to building your business. In today’s competitive market, many business owners receive unsolicited offers. With a competitive offer in hand, it may be tempting to try to negotiate a transaction on your own. However, hiring an investment bank can add a great deal of value beyond sourcing potential buyers.

Five reasons to hire an advisor when considering a sale of your business:

  1. Reduce your execution risk
  2. Better understand your goals and priorities
  3. Evaluate all your options
  4. Ensure the deal’s terms match your specific needs
  5. Maximize your economics

Reduce your execution risk

The most capable advisors understand execution risk is significant in an ultra-competitive market and manage this risk for their clients through disciplined transaction management. They get the deal to the finish line without a drawn out process.

Under current market conditions, effective transaction management is more important than ever. Private equity dry powder has reached unprecedented levels. This abundance of capital and the pressure to deploy it quickly have set the tone across the entire M&A market and has created an environment where buyers are increasingly underwriting to perfection with their initial bids. They must start with the top of their range to win. And while it provides favorable initial terms to prospective sellers, the lack of underwriting “wiggle room” brings unintended consequences. Buyers become ultra-sensitive to any perceived bad news or negative findings in due diligence, and the aggressive terms they initially presented may be dialed back (a re-trade), much to the frustration of the seller.

An experienced advisor can help business owners manage these risks. Upfront organization of data and the investment narrative is critical to managing execution risk. Approaching the market in a highly organized fashion requires the skillset of an experienced advisor. Further, capable advisors recognize that after receiving an offer, a disciplined timeline is the most critical factor in driving the deal to closing. They have the experience and skillset to hold the buyer accountable to an appropriate and market-based level of due diligence.

Better understand your goals and priorities

The best advisors aren’t just capable of bringing the right potential buyers to the table. They also help owners clarify their ultimate goals and priorities and design a process that matches the desired outcome of the seller.

In most transactions, financial considerations—such as the purchase price and how much cash the owner will receive at closing—are obviously important factors. But non-financial aspects of a deal, such as the owner’s future role in the business and their legacy, are also important to many owners. For example, is the owner seeking to exit the business immediately and move on to other priorities or do they prefer a gradual transition to the next era of the company’s leadership? An advisor should begin the potential sale process by exploring these sorts of questions and building a fundamental understanding of the owner’s priorities.

The owner’s legacy at the company and in the community may also be a consideration for some. For example, some owners may not even consider selling to a private equity firm or strategic acquirer to avoid the risk of the buyer eliminating jobs and potentially affecting the seller’s reputation in the local community. For others, a desire to provide a meaningful benefit to employees who helped build their business may lead them to pursue a sale to an employee stock ownership plan (ESOP). With a clear understanding of the owner’s goals, an experienced advisor can help craft the optimal deal strategy.

Evaluate all your options

The best advisors are knowledgeable on all potential deal structures and buyer types and can help an owner weigh the pros and cons of the various sale options. Whether the optimal route is to sell to a strategic buyer, private equity firm, employee stock option plan (ESOP), or to existing management through a management buyout, an experienced advisor can explain the available options in simple terms and walk an owner through the nuances of each approach.

Not surprisingly, the best option will depend on the owner’s goals, as described above. For example, if the owner is seeking to maximize cash proceeds and fully exit the business, selling to a strategic acquirer or competitor may make the most sense. On the other hand, if the owner wants to continue building the company with the support of an expert partner, a minority equity investment from a strategically aligned growth equity partner may be the best solution. Alternatively, an ESOP may be the optimal path for an owner who wants to continue playing a leadership role in the company as well as support their employee base.

Ensure deal terms match your specific needs

A talented investment banker can walk owners through each step of the deal process and translate their aspirations into specific deal terms. Business owners often don’t appreciate the degree to which deal terms, beyond headline purchase price, can affect their ultimate outcome.

For example, the opportunity for rolled equity and associated protection as a minority investor is key to many deals, especially where the business owner has a continued appetite for entrepreneurial pursuits in the next stage of the business with an invigorating capital partner. If an owner is going to forego some liquidity at close for future upside, protecting their rights as a minority investor is necessary to ensure the most favorable outcome in the long run. Furthermore, an advisor can perform reverse diligence on the prospective buyer to help the seller understand the degree to which they may want to reinvest. Other owners might want a clean exit and may seek to minimize their exposure using insurance over escrows or other appropriate deal mechanisms.

An effective advisor brings negotiating expertise that can be valuable during a transaction process. While many business owners are experts in their field, they typically aren’t experts in M&A dealmaking. However, most buyers are professional investors. Owners therefore can benefit from working with an advisor who can match or exceed their counterparty’s expertise and help ensure that they are not at an informational disadvantage on deal structure, terms and best practices.

Maximize your economics

Investment banks seek to maximize deal economics by driving engagement with potential buyers and managing competitive deal processes. It is essential for an investment bank to have a deep network of buyer relationships to source the right types of interested parties. Working with an advisor who has experience with various buyer types and deal structures can help owners better understand the true value of their business and the best path for the transaction. In addition, advisors who also have experience on the buyside, like ButcherJoseph, due to our buyside experience and merchant banking business, may bring an edge in negotiating on behalf of the seller.

A valuable resource at a critical time

No matter how far along you may be in the deal process—whether you are just considering your options or actively evaluating an offer—it is never too late for an advisor to add value. An experienced advisor can ensure the transaction truly meets your objectives and leads to the best outcome.

Capable advisors can walk you through every step of the process and carefully explain a deal’s terms in explicit detail and in simple terms. At ButcherJoseph, we take pride in our ability to help founders understand all of a deal’s nuances and clarify exactly what you can expect from a financial and non-financial perspective.

If you are an owner who is thinking about selling your business, ButcherJoseph can help. We often begin the process with a complimentary Feasibility Study Analysis, which can help you understand the value of your business and which type of buyer may be best for you. If you are interested in learning more, don’t hesitate to contact us today.

 

ADDITIONAL RESOURCES