Comments on: What use is an investment banker?

By: Cyrus Maghami

Cyrus Maghami — Wed, 09 Sep 2020 18:00:44 +0000

Value Add:
– proper positioning/story telling of the opportunity financially and operationally
– generate additional and perhaps better strategic acquisition options
– better strategic acquirer means more synergies, should translate to higher value
– additional options drive competition, driving increase in value
– banker fees structured as % of the incremental offer. The higher the incremental the higher the fee, so incentives are aligned and essentially sharing in upside
– process, negotiation, due diligence management. CEO spends considerably less time, which can be spent on upholding financial performance which is driving the desired valuation, and less prone to costly missteps
– consistent/realistic guidance and coaching from start to finish through a daunting, volatile process that can range from 3-6 months

By: Stephen

Stephen — Wed, 09 Sep 2020 02:35:56 +0000

Thank you for this article.
Really insightful and thoughtful

By: John Tanner

John Tanner — Tue, 08 Sep 2020 18:49:19 +0000

About 7 years ago, we were approached by one of the big three companies in our industry to sell our division to them. It was well known that this company paid the smallest multiple of revenues among the big three for their acquisitions, so we enlisted the most experiences investment banker in our industry. They identified 20 or so possible buyers and approached 6 or 7 that were thought to be the most likely targets, including the other two of the top three. They were able to come up with no competing offers so we ended up selling to the company that originally approached us for a small multiple. And we netted less money due to the significant investment banker fees. It turned out to be a real waste of money. I was not going with the sold division, so negotiating my compensation package was not an issue.

I think about what we could have done differently, not knowing when we entered the contract with the investment banker that they would not be able to generate competition. I wonder if we could have structured a deal with them that their fees were reduced, perhaps to zero, if they could not generate a competing offer.

By: Peter Cowen

Peter Cowen — Tue, 08 Sep 2020 18:21:59 +0000

Very good points Dave. As an entrepreneur who co-founded and sold 3 of my companies, and now a technology investment banker, I would like to highlight a couple of other key points. First, most sellers vastly underestimate the time and emotional stress of a selling process, often distracting the exec(s) from running their business. An effective investment banker can meaningfully reduce the time and stress and put more controls in the process. Second–and perhaps most importantly–an investment banker can help qualify the right buyer (even if it is a lower price) and keep them honest. The fact is today among professional buyers such as PE firms and strategic buyers, the process has become more complicated and many of these buyers are more likely (once they have secured the LOI) to pull (a lot of) shrewd moves, particularly at the zero hour. A powerful advisor can help mitigate (but certainly not eliminate) these issues. Also an investment banker can discern the key issues that could be dealbreakers for certain buyers and bring them up earlier to better run the process so late due diligence does not blow up a deal on something that should have been disclosed earlier. (In that case the seller is saddled with legal fees, emotional exhaustion and often anger/bitterness–this is highly emotional.

There are some great attorneys–but by the nature of their hourly fees and their training–positioned to understand the non-legal nuances of getting a deal done. Having said all that–NOT hiring a great attorney is a mistake–along with a trusted experience advisor/investment banker.

Net, net–most entrepreneurs I know who did not use an investment banker–whether the deal succeeded or not–lamented that they wish they had!