Choosing an Investment Bank When Selling Your Business

Posted By Madilyn Moeller, Wednesday, March 13, 2024


By Skytale Group

If you’re navigating the process of selling your business, you might find an overwhelming amount of information about the process. That’s because there is an abundance of interest from private equity and strategic buyers in growing industries such as dental, medical aesthetics and other health care markets. This interest, as well as referrals from other providers, leads to business owners fielding an onslaught of calls and emails about selling their businesses.

The reality is that many first-time sellers navigate the complex sales process alone—they don’t choose anyone to represent them. But without a knowledgeable, experienced advisor, business owners are potentially missing the opportunity to sell their businesses for their full value.

Choosing an expert to represent you through the sale process is crucial, and choosing the right experts to support you is also essential. That’s why Skytale Group recommends working with an investment bank.

Why hire an investment banker instead of an M&A broker?

There are many types of organizations that can represent a seller. Why choose an investment bank?

The sale of your business is likely the biggest milestone of your career. You’ll benefit from having an experienced guide in your corner during the sale process to direct you toward the best possible outcome for you, your employees and the business you’ve grown.

Here are a few imperative qualifications to consider as you choose—qualities you’ll be more likely to find in an investment bank than any other type of broker:

  • Industry experience
  • Transaction experience
  • Buyer relationships
  • Potential buyer interest
  • Regulatory requirements

First, let’s break down the differences between working without representation, working with an M&A broker and working with an investment bank. Then, we can dig deeper to identify some of the advantages of choosing to work with an investment bank.

Who can represent you in the sale of your business?

Selling your business without representation: When owners receive an investor’s offer to buy the business, they may choose to proceed through the sale on their own. While it isn’t required you hire any type of advisor, it isn’t wise to attempt it on your own. Here’s why.

Buyers who approach business owners about selling typically avoid the topic of competition or intermediaries. It’s in their own best interest to avoid a competitive process or a banker—a buyer would like to buy your business at a valuation and deal structure most advantageous to them.

They may not have the seller’s best interests in mind when presenting an offer. And without representation, a seller misses the opportunity to meet other potential buyers, identify a true (potentially higher) valuation and negotiate the terms of the deal structure in their own favor.

Second, the sales process is labor intensive and time-consuming. From communication to due diligence to documentation, it’s a great deal to take on for a person navigating it on their own, especially while simultaneously running a business.

M&A brokers: If you’re selling a health care practice, a broker can help facilitate the transaction between you and the buyer. Because “broker” can be a broad term, it’s important to understand how much experience a broker has in your industry. Here are a few questions you may want to ask of a broker:

  • How many similar transactions have you facilitated in this industry?
  • What relationships do you have with potential buyers?
  • How do you plan to market my business to potential good-fit investors?
  • What does the deal process look like if I work with you?
  • What’s your valuation methodology for my business?
  • How do I ensure you’re committed to guiding me toward the best possible outcome?

Some experienced brokers might be intimately familiar with your industry. Others, however, may not have any experience with a sale. You’ll want to look for an experienced advisor who might be able to negotiate better terms on behalf of the client or introduce a seller to other potential buyers.

Investment banks: Investment banks are deeply experienced in leading an M&A process. They will follow a sophisticated process for sellers and will have an extensive buyer network. What’s more, they also have deep experience and knowledge of the financial and private equity spheres, understanding trends beyond the industries they specialize in.

One notable difference between an investment bank and any other M&A broker or advisor is licensing. This allows investment bankers to offer a wider range of services, some of which require formal licensing of all broker dealers.

Investment bankers, as opposed to M&A brokers, are registered with Financial Industry Regulatory Authority (FINRA) member firms. Because of its FINRA licensing, an investment banker’s services will be regulated to ensure fairness and honesty. Even an investment bank’s employees must hold specific FINRA licenses to perform their job duties. Working with licensed investment banking professionals during an M&A transaction ensures this added layer of protection for both sellers and investors.

To become FINRA-certified, investment bankers must undergo stringent qualification exams and continuing education. They have a fiduciary responsibility to clients that goes beyond having their best interest in mind, which all brokers and advisors should share.

Benefits of working with an investment bank during the M&A process

There are many advantages to having an investment bank help you navigate the sale process.

Thorough and sophisticated M&A process: On behalf of their clients, investment banks will carry out a formal M&A process, which includes a deep analysis and understanding of the business and its leaders, history, financials, goals, culture and values. This leads to a true valuation of the company and the opportunity to be presented to a network of carefully selected, best-fit buyers. Investment banks have the experience to keep the deal moving forward toward the best possible outcome for their clients.

Higher valuations: Investment banks understand the market and what drives valuations, and private equity investors know this. As a result of a thorough valuation process and a positive perception from investors, a client may be more likely to receive higher valuations working with an investment bank than with an M&A broker.

The bottom line is, an experienced investment banker can pay for themselves by providing incremental value to their clients in a sale process. A skilled investment banker can push buyers to provide offers toward additional value that can cover their fees.

Industry expertise and transaction experience: Investment banks offer a team of industry experts who have navigated countless deals on behalf of buyers and sellers. They understand exactly what buyers look for and can present a client’s data and coach their management teams to position the business as best as possible.

They also offer skills at financial modeling, knowledge of valuation structures, and legal terms that can help sellers and buyers negotiate offers that provide value for both sides.

Protect the Seller’s Time: Investment bankers can help reduce time commitments by the seller and their staff by managing the sale process, managing buyer-seller conversations, vetting buyers and handling due diligence requirements, as well as serving as a buffer between the seller and buyers. Also, by providing buyers with detailed diligence and organizing supporting documentation, buyers can increase certainty to close by speeding up the time to closing.

Extensive Buyer Network: Knowing you’ve found the right buyer for your business provides you the peace of mind that the organization you’ve spent your career building is in the right hands. Investment banks offer an extensive buyer network to ensure you find not only a strong offer, but also the right partner for your business’s future.

Vast internal resources and network effect: With an investment bank, you’ll have a full team of experienced professionals in your corner. They can also connect sellers with other experienced advisors—such as legal counsel, tax advisors, wealth managers, CPAs and more—who can be vital to protecting a seller’s interests and speeding up negotiations. Investment bankers can draw upon a vast network of referrals to identify the right skilled professionals who have directly applicable experience to a seller’s industry and transaction type, which can reduce a seller’s time commitment, speed up a sale process and reduce fees.

Confidentiality: Investment bankers know how to run an M&A process and contact buyers without anyone knowing the seller’s identity. You can avoid broadcasting the sale to employees or competitors, which may disrupt a sale process and hurt valuations. Additionally, experienced investment bankers do not list the company for sale publicly; rather, they perform targeted outreach to buyers, requiring an executed non-disclosure agreement prior to seeing any sensitive or revealing information.

Fiduciary responsibility: Unlike other brokers, investment bankers have an added fiduciary responsibility to their clients because of their FINRA licensing. Throughout the complex M&A process, it helps to know an investment bank not only has your best interest in mind, but also is also committed to navigating a fair and honest deal.

Transaction types and complexity: Investment banks and their employees can facilitate a wider range of transactions—and often more complex transactions—than other M&A brokers. This includes raising capital or debt.

Skytale Group is an investment bank specializing in health care transactions

Working with an investment banking team such as Skytale Group’s during the sale of your business offers many advantages. Its professionals are licensed and registered. These benefits culminate to a sophisticated level of knowledge and market intelligence across the capital markets.

Skytale Group understands the magnitude of selling a business—often an owner’s life work. Reach out to its team to learn more about how it treats clients’ businesses like its own through every transaction. Learn more about Skytale’s recent deals on its transactions page.

Skytale Group is a full-service strategic, financial, and M&A advisory firm. Through management strategy and financial analysis, Skytale helps start, grow, and sell organizations within the aesthetics space.

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