Business owners who elect a DIY approach to selling their companies have a lot to lose and very little to gain. A study of owners who sold their companies between 2011 and 2016 found that investment bankers influenced value directly, growing the final sale price beyond the initial estimate. The survey identified a number of key areas in which investment bankers added value, including:
- helping to structure the transaction
- managing the M&A strategy and process
- coaching and educating the owner about sales
- negotiating on behalf of the owner
- structuring the transaction in a way that lends credibility to the process
- getting the company ready for the sale
- identifying and courting buyers
The study found three key reasons that the M&A market is unfriendly to owners, necessitating the intervention of investment bankers:
- The market is not transparent. Middle-market companies do not trade on a stock market, making it difficult to get accurate information about any company's value. There is no publicly available valuation list, and M&A purchases are usually private, with no values disclosed. This means owners must rely on experts to guide them through the process and understand what realistic values actually look like.
- In the middle market, there is a serious imbalance between the information and expertise buyers and sellers bring to the table. Sellers have the informational advantages about their own companies, but buyers usually have significantly more experience with M&A, due diligence, valuation, and all other aspects of the sale process. Owners are often distracted by running their own business, too, adding to the buyer’s advantage.
- The sale process is exhausting and difficult. It can take a year or longer to sell a company, and owners must often grapple with sudden and unexpected issues. It’s easy for owners to become distracted, causing their companies to lose value and the sale to lose momentum. The market is just not efficient for middle-market companies, especially for owners.
Valuations are all over the place, with offers ranging from 25 percent beneath to 25 percent above the average offer. It’s challenging for owners to know what to expect, how to generate value, and how various deal terms may affect their ultimate goals. The right investment banker makes the process easier and smoother, helping you successfully sell your company without losing your mind.
About Madison Street Capital
Madison Street Capital is an international investment banking firm committed to integrity, excellence, leadership and service in delivering corporate financial advisory services to publicly and privately held businesses. Over the years we have helped clients in hundreds of industry verticals reach their goal in a timely manner.
Our experience and understanding in areas of corporate finance and corporate governance is the reason we are a leading provider of financial advisory services, M&A, and valuations. With offices in North America, Asia and Africa, we have adopted a global view that gives equal emphasis to local business relationships and networks.