Selling Your Company in 10 Steps: What You Need to Know About Investment Banks
Our experience at Key Private Bank is that approximately 50% of business owners will choose to sell their business to a third party. And just as most homeowners use an expert (a real-estate agent) to sell their house, many transitioning business owners will hire an expert in the form of an investment bank to sell their companies.
There are several important reasons to consider working with an investment bank in the sale of your business:
Selling your business is a full-time job.
Transitioning your business by selling it to a third party involves lots of moving parts, including valuation analysis, marketing, identifying and contacting qualified buyers, negotiating the sale, and helping coordinate due diligence, etc. It’s a full-time job, and an owner’s time is usually better spent running the business and optimizing its value.
An advisor helps preserve confidentiality.
Understandably, you may worry about the impact that knowledge of a prospective sale of your company will have on employees, suppliers, and competitors. An investment bank can provide valuable cover and keep your identity and intentions out of the public domain. Investment bankers also know when this information should be shared during the selling process in order to protect the seller.
You have the opportunity to get greater value.
Due to their expertise in mergers and acquisitions (M&A), an investment bank generally will get a higher price for the business than you could if you go it alone. Of course, the investment bank will also charge a commission for managing the sale. The value an investment bank can generate in terms of a higher purchase price and better deal structure often outweighs the commission compared with the value the business owner can produce from talking with one buyer.
The 10 Steps of Selling Your Business
If you decide to work with an investment bank to help sell your business, it’s a good idea to understand how the process works. Each investment bank—and there are many very good ones—will focus on getting the best possible value for a company being sold.
There will be differences in how each investment bank approaches a transaction (some are much more robust than others). However, they all follow the same (similar) 10 basic steps:
1. Establish range of values
2. Create teaser marketing materials
3. Identify prospective buyers
4. Send teaser and non-disclosure agreement (NDA) to approved buyers
5. Organize data room
6. Obtain indication(s) of interest (IOI)
7. Conduct site tours and meetings
8. Obtain letter(s) of intent (LOI)
9. Select buyer and complete due diligence
10. Sign purchase agreement
Making the Decision
An investment bank can demystify the sales process and add real value when you undertake the process of selling your business. As mentioned, the investment bank will also charge a commission for managing the sale. It’s important that you weigh the benefits and costs to determine if using an investment bank is the right decision for you. Remember, selling your business via an investment bank is only one transition option available to you. To increase your odds of maximizing the value of your business, you need to educate yourself on all of the different transition options available.
For more information about preparing to sell your business, contact your Key Family Wealth Advisor or visit key.com/familywealth.