For different but similar reasons, some buyers and sellers choose not to employ an investment bank (IB). When a trusted advisor strongly urges their client, buyer or seller, to hire an IB, that usually gets their attention. Short of that happening, prospective buyers and sellers provide these excuses:
- It was approached by a competitor who offered a good price.
- I know the value of my businesses because my neighbor just sold his.
- I do not need any service providers to comb through my records. I am fully ready to sell.
- I know how to buy (sell) a business and only need my lawyers to effect a deal.
- I do not want to pay the “exorbitant” fees of IB’s.
- Sellers: I believe the deal I will consummate (have struck) will stand, and not be re-traded below my bottom line minimum.
- Buyers: I just do not need any party in the middle, between me and the seller.
Contrary to the above, we offer the following reasons which justify the use of an IB.
- The first unsolicited buyer is rarely the ultimate buyer, as they try to avoid an open market process.
- At least 50% more deals get done with the help of the IB, than without.
- Pricing of deals is usually 30-40% higher, based upon the presentation and negotiating skills of the IB.
- Buyers and sellers have much greater credibility when represented by an IB, especially with the opposite party and their trusted advisors.
- Buyers and sellers must focus on their own business operations, and let the professionals do their jobs.
- Most importantly, a good IB will uncover issues to be corrected and resolved before they are presented to a buyer.
- Buyers need the IB who can find the right target(s) and determine if they are fully committed to sell.