“Should I Hire a M&A Banker?”May 3, 2021
This question was posed to me recently by a client looking to sell its business, and the answer was an emphatic “yes.” Every situation is different and should be reviewed in light of its specific facts and circumstances, but in most cases the answer will be the same.
Consider the basic personnel, preparation and steps required to sell a privately held company. In addition to the CEO, the seller’s core deal team will require at least the CFO (or other numbers person), an M&A lawyer, and an accountant/tax-preparer. The seller will need to:
- Prepare the company for sale, which could include-
- Gather the deal team
- Diligence and clean-up the company
- Ensure the historical financials are in order, determine EBITDA adjustments, and prepare projections and working capital calculations
- Devise the optimal structure and process to sell the company
- Understand the range of values (including if this is even the right time to sell) and the universe and identity of likely and potential buyers
- Address management succession plans and ongoing roles
- Determine if estate planning measures for individual owners have been addressed
- Prepare required marketing materials
- Manage the sale process, including the timetable
- Negotiate and document the transaction
- Continue to operate the company and “hit the numbers”
Depending on the composition of the seller’s deal team described above, the seller may be well-situated to handle some of these tasks. But selling a company is typically a difficult and time-consuming process, and bankers do it for a living and are particularly adept at handling many of these tasks. And many deal teams do not possess all the required skills, market knowledge and experience to handle a sale transaction in the optimal fashion, so a good banker can help to fill these gaps. One crucial role filled by a banker is to act as an intermediary in communications, limiting disruption to the management team and allowing the seller to more fully continue to devote its attention to operating the business. In many cases there will be a disparity in size and deal sophistication in the buyer’s favor, and another crucial role for a banker is to help to counteract that disparity. With its knowledge of the market, a banker is usually best situated to help to value, position and market a company for sale. But no surprise- the biggest benefit a sell-side banker typically brings to the table is to achieve a higher sale price for the business. Combined with the other services provided, bankers are able to widen, better target and then manage an optimal pool of bidders, with the competitive tension created by having (or appearing to have) multiple bidders likely to result in an increased sale price.
Jack Steele is a Partner in Hinckley Allen’s Corporate & Business group.