It’s the age old question that every investment banker must eventually answer: what value do you add? As with every other profession, investment bankers must justify themselves. If you’re selling a business, an investment banker is worth their weight in gold. They confer significant value, and can expedite the transaction while alleviating owner stress.
Yet many investment banking firms continue to advise that advisory is a dying art. They point to dedicated corporate teams that now shepherd the M&A process to perfection. They emphasize that these teams are often cheaper than outside advice. We don’t think investment banking is dead yet, or that it ever will be. Here’s what you need to know about this age-old art.
The Value of an Investment Banker
The process of selling a business involves much more than just finding a buyer and negotiating a price. The timeline from initial decision to closing ranges from weeks to months, and occasionally even years. You must negotiate all aspects of the deal, submit to due diligence, and ensure that the deal is a good fit for all parties.
That’s more than most owners can do on their own. Moreover, they will be working with a deal partner who may have significant experience at purchasing businesses, and who almost certainly has the benefit of a professional advisory team. That’s a decidedly lopsided equation. Owners go it alone—or use only in-house support—at their own peril.
Even assuming an owner can competently negotiate a deal on their own, there’s much to be lost. The demands of negotiating a deal are destined to distract an owner from the daily requirements of running the business. This can ultimately thwart operations and undermine value. In most cases, the cost of hiring an investment banker is far less than the money, profits, and time you stand to lose if you go it alone.
Why Your Advisor Must Justify Their Existence
The right M&A advisor confers significant value. That doesn’t mean you should hire the first person who comes knocking. The goal should be to find someone with deep industry connections to whom they can shop your business. You need a deal-making expert who can offer—and demonstrate—significant value. Put simply, your investment banker must be able to clearly explain why you need them. Some questions to get the conversation going include:
- How many deals have you closed in the last three years, and at what value?
- What is your specific plan for my business?
- To whom do you hope to sell this business? What is your marketing plan?
- What value do you bring to the table?
- Can I speak to references?
- What do you think is a reasonable value?
- What specific tasks will you help with?
Finally, you must choose someone with whom you like working with. You’re not in the market for a best friend, but you will be spending significant time together. Ensure this is a person whom you can tolerate. Intuition and the right “fit” both matter.