Choosing the Right Investment Banker to Help Sell Your Company
ArticlesNovember 2015

Choosing the Right Investment Banker to Help Sell Your Company

By EdgePoint

For many closely-held business owners, the sale of their company is likely one of the biggest decisions they will ever make. Selling a business is often a complex process, with the outcome significantly impacting the owner, his/her immediate family, employees, and legacy in the community where the business is located. Choosing the right advisor to assist in the sale of a business is of paramount importance when trying to derive the best value, terms, and outcomes from this once in a lifetime event. The process encompasses understanding and negotiating valuation, legal, accounting, finance, regulatory, operational, and cultural issues to name a few. Although skilled at profitably running their business, many owners are not prepared to navigate the myriad of issues that arise during the sale journey, or the time to sufficiently address them without proper guidance. An experienced investment banker possesses the skills necessary to advise and steer the owner to achieve their ultimate goals and objectives.

The following is a summary of some key considerations in choosing the right investment banker.

The investment banker often acts as the quarterback of the process to identify options with the selling owner and determine expected value and the best path to confidentially market the company and identify the best buyers. The right investment banker possesses a breadth of knowledge and experience across the various fields mentioned above as well as exposure and knowledge about the business owner’s industry. In determining the right partner, a business owner should be thorough in vetting potential advisors and the background of the firm’s professionals. Many business owners first step is to ask for recommendations from existing advisors such as their accountant, attorney, or investment advisor. These advisors are generally familiar with the sale process, and can offer valuable input to assist the business owner verify an investment banks’ credentials.

In addition to professional background and experience, some transactions require an M&A advisor that is a FINRA registered broker/dealer. Selling the stock of a closely-held business can be considered a securities transaction subject to federal and state securities regulations. Choosing an investment banker that is subject to the regulatory oversight and practice standards required by FINRA can help further credentialize an investment banker and organization. In addition to speaking with existing advisors, business owners should request a list of referrals from potential investment bankers. Speaking with former clients can provide several key pieces of information critical to the choice of an advisor such as:

  • How was the working relationship with the advisor?
  • How involved were the senior advisors in your process?
  • Did they understand your business and industry?
  • Did the advisor understand your financial and personal goals post-transaction?
  • Were they aligned with your goals?
  • How much interest were they able to generate for the business?
  • How successful were they in negotiations?

Strong M&A advisory firms should be able to produce several references to a potential client. Preferably, the advisory firm’s references should have worked together in the last three to five years and have some representation within a relevant industry.

When it is time to select an M&A advisor, business owners should focus on two critical questions. First, does this firm provide the best possible chance of completing a transaction that satisfies my personal goals? Second, is there good chemistry and trust with the advisor?

To answer the first question, a business owner should ask pointed questions of the advisor such as:

  • How many transactions do you complete a year?
  • What is your closing percentage?
  • What transactions have you done in, and around, my industry?
  • Do you have buyer relationships and contacts in my industry?
  • How recently have you completed a transaction in and around my industry?

Answering the question about chemistry can only be achieved through the business owner’s interactions with the potential advisor. However, it is important to consider that good chemistry and trust are keys to completing a successful process. During a transaction, business owner’s work very closely with their advisor, generally, for a period of nine to 12 months. The business owner will rely on the advisor’s input and experience to make very important, life changing decisions. If a business owner does not have confidence in their advisor, a successful closing is unlikely.

As with all business interactions, cost will also be a factor in the choice of an advisor. A good advisor will not be inexpensive, but they will earn their fee, and, hopefully, more. Just as important as the cost, though, is the structure of the engagement. Most investment bankers will request a retainer (generally a small percentage of the anticipated fee) which will be used to cover some of the firm’s fixed costs. The remainder of the fee should be contingent and due upon a successful closing of the transaction, and generally represents a percentage of the transaction value. Ideally, the fee is structured in a manner that aligns the business owner’s goals with the advisor’s.

Although not comprehensive, this article should provide business owner’s with many of the key considerations for choosing a strong advisor and increasing their probability of a successful transaction. No advisor can guarantee a successful outcome, but the wrong advisor can guarantee that one will not happen.

© Copyrighted by EdgePoint. Tom Zucker can be reached at 216-342-5858 or at