Why Hire An Investment Banker?
Why Hire An Investment Banker?
Entrepreneurs and CEOs are driven individuals with a passion for their businesses. They are go-getters that take the initiative in almost every aspect of their company. For these reasons it is no surprise that when it comes to M&A, many entrepreneurs and CEOs feel they can do it themselves. These individuals have successfully run their business for years or possibly even decades and may ask themselves “why hire an investment banker?”
While some entrepreneurs and CEOs are capable of completing M&A transactions, the majority of these business leaders are not. The result is that they tend to complete deals for less than maximum value or end up with a transaction with less than optimal terms. An investment banker plays a crucial role in achieving the most value in a transaction and best terms in ways that are not always apparent to entrepreneurs and CEOs.
Appearance of Neutrality
When attempting to sell to another company, especially a competitor in the same industry, entrepreneurs and CEOs face the challenge of presenting themselves as genuinely interested. Many buyers shy away from dealing directly with entrepreneurs, particularly in the lower middle market because they know that they simply don’t have the proper experience to complete a transaction. An experienced investment banker can provide the seller with the appropriate guidance on how to conduct an auction, respond to offers, cope with due diligence, negotiate the terms and conditions, etc.
Better Relationships Post Closing
When a company sale takes place and the entrepreneur or other owner-managers stay with the business, both the buyer and seller management teams must learn to work together as fellow employees. If these two parties have been negotiating fiercely with one another during the merger, relations post-closing will be strained. An investment banker negotiating on behalf of the seller can act as a shield between their client and the other party. By utilizing an investment banker, a party has greater leeway in terms of the negotiating tactics that can be used because post-closing the “blame” for the use of those tactics can be placed on the investment banker, not on the seller. This is one of the critical roles that an investment banker plays as the true measure of a successful transaction is frequently the smooth integration of management teams post-closing.
Objectivity
During the sales process, there are bound to be unexpected challenges that arise, particularly for the seller. In these instances, it is invaluable to have a resource that can provide an objective opinion on what is the best strategy to proceed. Entrepreneurs and CEOs that are closely tied to a business may, understandably, take “bumps” in the process personally. Having an experienced advisor in these situations can help to ease tensions, formulate a measured response even in difficult situations, and keep the transaction moving forward.
Thus, we have the answer to why hire an investment banker. The M&A advisor can assist in many ways that most entrepreneurs or CEOs can’t envision. Careful management of the M&A process by the investment banker will result in higher valuations, better terms, and support better relationships between the buyer and seller post-closing. Therefore, sellers should hire an experienced investment bank with many years of experience. Versailles Group, founded in 1987, has completed a large number of successful transactions for entrepreneurs and corporate managers worldwide.
