Most privately-owned business owners will eventually consider a sale of their company. Few, however, have prior experience in navigating a sale process or fully understand the role of an investment banker in facilitating a transaction. Investment bankers lead sophisticated sale processes that are designed to accomplish shareholder objectives and maximize transaction outcomes. They are typically involved from the earliest stages of considering a sale process through to the closing of a transaction.

At a high-level, the goals of an investment banker are to complete a transaction, maximize value and other deal terms, minimize time in market and mitigate risks to the shareholders. More specifically, we have outlined 9 key roles of a sell-side investment banker that drive transaction value:

 1. Preparing for the sale process

A sale process typically begins with several months of internally-focused preparation. During this time, investment bankers collect key information and spend considerable time understanding factors such as the company’s strategic vision, operational capabilities, key competitive differentiators, growth opportunities, shareholder objectives, management dynamics and potential business or industry risks. The analysis of historical financial trends, potential adjustments to reported results and the construction of a thoughtful financial forecast are also key workstreams. This period of preparation can also involve a review of key legal agreements, as well as having an accounting firm conduct a quality of earnings. The primary objectives of an investment banker during this stage of the sale process are two-fold. First, to understand and be able to convey the positive attributes of the company that will make it a compelling acquisition candidate, and second, to view the opportunity through the eyes of a buyer and anticipate areas which may be of concern or require further, specific due diligence. It is critical to take the proper time up-front to understand and address all key factors which may impact a potential transaction, as well as prepare the management team for the process to come.

2. Creating high quality marketing materials

An investment banker will produce high-quality marketing materials which will be shared with interested parties after they have entered into a confidentiality agreement. Marketing materials typically take the form of an information memorandum and a management presentation. These documents may range from 25-75 pages in length and will represent the culmination of the team’s efforts and the positioning thesis developed during the sale preparation stage. The materials should be highly professional in nature and present the acquisition opportunity in a compelling light, while proactively addressing the key questions which are anticipated from the buyer audience.

3. Establishing valuation expectations

Investment bankers have access to the latest data sources for valuation-related metrics but more importantly are able to draw upon a career of real-life transaction experiences in assessing potential valuation outcomes and likely drivers for a given opportunity. While valuation is ultimately a customized negotiation between a willing buyer and a willing seller, investment bankers help establish initial seller expectations and play an important role in influencing buyer expectations during the process. Misguided valuation expectations can potentially result in the risk of a failed transaction process or unnecessarily leaving dollars on the table.

4. Designing a customized sale process

As the saying goes, no two deals are alike. Sale processes can include 1, 10, or easily more than 100 potential buyers. Decision making variables might include the relative size and attractiveness of the company to be sold, industry trends, competitive dynamics, viewpoints on who the “best” buyers might be and their likely acquisition rationale, as well as potentially competing shareholder objectives, such as price, speed to close, certainty and confidentiality. In conjunction with management, an investment banker will customize a list of potential buyers to be contacted and a process related to the order and manner in which they will be confidentially approached. Importantly, even in “one-off” discussions, the involvement of an investment banker sends an important signal to the buyer that the seller is being advised by someone who not only has experience, but also has the ability to open other doors, thereby creating an appearance of competition where one otherwise may not exist.

5. Marketing the business and relationships with potential buyers

Senior investment bankers are often focused on specific industries where they have cultivated valuable perspectives and relationships with industry participants over the course of their careers. Investment bankers are also in regular contact with hundreds of private equity firms, each with their own unique investment criteria and preferred pathways toward value creation. Importantly, investment bankers are able to clear the market on a confidential basis by first previewing the acquisition opportunity on a no-names basis to assess a buyer’s interest and ability to pursue a potential transaction, something a company cannot accomplish on its own. Investment bankers also may have experience with the past behaviors of specific buyers pre- and post-transaction, which can serve as valuable reference points to aid their clients in decision making.

6. Negotiating for value

Equal parts quantitative and qualitative, an experienced investment banker knows how and when to push for value during a sale process. That will involve more than just purchase price, as there are other shareholder objectives and key terms to also be considered. At key points during the transaction process, an effective investment banker will convey to potential buyers positive company developments, shareholder priorities and objectives, and the competitive dynamics of the sale process in order to influence deal outcomes.

7. An experienced deal navigator

At best, the sale of a company is an inherently emotional process for most business owners. At worst, it can feel like a roller coaster. Virtually all transactions will involve a series of unknowns, surprises and curveballs which an experienced investment banker will be able to navigate. They will be able to craft messages and develop solutions to issues and obstacles that will arise. Without the benefit of experience, mistakes can be made during the course of a deal that can have significant implications on the outcome of a transaction.

8. Help with the heavy lifting

The sale of a business requires a tremendous amount of work and coordination. Regardless of what a suitor may say when trying to court the “affection” of a prospective seller, there is no easy path to a deal and there are no shortcuts in due diligence that do not come without significant tradeoffs. Some would-be buyers will promise an expedited path to an easy transaction, but real-world dollars and the constituencies to which they are attached typically dictate a different story. An investment banking team will bring significant horsepower to the table to shoulder much of the heavy lifting that will be required – organizing information, coordinating visits, facilitating buyer(s) due diligence and inquiries, pushing back on overly burdensome requests, and navigating through any obstacles toward a transaction closing. Having an external team in place to absorb this workload accomplishes two critical objectives: expediting the overall transaction timeline and allowing management to continue focusing on business operations during the transaction process.

9. Transaction guidance from beginning to end

Completing a transaction often involves the efforts of multiple third parties, which can range from lawyers to accountants, tax advisors, lenders, insurance representatives and others. While various parties will play a critical role at select stages of the transaction process, an investment banker is accustomed to working with all of these parties on behalf of their client throughout the transaction lifecycle. An investment banker provides guidance and leadership from the earliest shareholder discussions around a potential sale through to the closing of a successful transaction.

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