How Investment Bankers Add Value

No one planning a business sale is eager to spend more than absolutely necessary in the pursuit of a good deal. So many owners back away from hiring an investment banker. That’s a mistake. Owners who work with an investment banker nearly unanimously say that the banker added significant value to the deal.

‍What Does an Investment Banker Do?

‍So what do investment bankers do that offer so much value? The role varies depending on your needs, the relationship with the banker, and your business, but in general you can expect that a good investment banker will:

1. Locate buyers: An investment banker expands the owner’s market knowledge and relationships by mining their own networks to locate potentially interested buyers.
2. Navigating the sale: The entire transaction can be a demanding, time-consuming process. An investment banker keeps the owner’s eye on the prize, making it possible to continue working as an expert manages and prepares for the sale.
3. Negotiating the transaction: An investment banker is a skilled expert who can adeptly negotiate the terms of the sale. That includes factors like purchase price, timing, conditions and terms, and other significant deal considerations. This also includes structuring the transaction in the most favorable and efficient way possible.
4. Making the seller more credible: The involvement of an investment banker can encourage buyers to take the sale more seriously. An investment banker is a sign of commitment that increases the likelihood of a successful sale with favorable terms.
5. Preparing for the sale: A successful sale involves more than just negotiations. It’s a long process that can take several years of preparation. Investment bankers help owners prepare for a sale, and they offer an education about what preparation actually means. This can ultimately increase the sale price and shorten the timeline to closing.
6. Setting owner expectations: Most owners have never sold a business. Even those who have have only done it once or twice. A good investment banker educates owners about what to expect so that the owner’s hopes aren’t dashed.
7. Protecting owners’ time: Planning for a sale can begin to feel like a full-time job. Investment bankers manage the daily operations of the sale so that the owner can continue running the business. This protects an owner’s time and lowers their stress. It can also preserve the value of the business.

How Bankers Add Value

‍Owners consistently say that managing the sale, including the process itself and the strategy governing it, is the most valuable contribution investment bankers make. Though many owners initially work with a banker to locate a buyer, owners who have actually worked with an investment banker tend to rank this role as the least important.This suggests that owners might not correctly anticipate their own needs, and that an investment banker may add value in unexpected ways.Some owners may not realize the extent to which an investment banker has educated and coached them through the process. Ideally, an owner feels so empowered that they might not even realize how much they didn’t know prior to working with the banker. This might explain why owners don’t typically hire a banker to learn more, and often don’t list education and coaching as the most central roles of an investment banker. Nevertheless, these roles add value to the sale and free an owner’s invaluable time. That makes the process less stressful, more profitable, and more streamlined for everyone involved.