DIY Banking vs. Hiring an Investment Banker

News of a sale of a company can spread like wildfire. Bring in the experts to manage the process, and don’t try this at home.

When news first spreads about the sale of a middle market company, it is common for the seller to receive direct inquiries from interested parties. At this point, it can be tempting to ditch the sale formalities and banker fees. 

Individuals unfamiliar with investment banking may not see the value of hiring bankers to sell their company. Ultimately, when it comes to finding the broadest universe of buyers, creating a competitive process, and structuring a deal, the benefits of hiring an investment banker outweigh the costs by millions.

Striking a great deal involves many steps, but price is naturally the most discussed of them. Many first-time sellers do not realize the impact structure has on the deal, in addition to just the price. For example, a seller can consider whether they prefer the proceeds to be stock or cash. Will the buyer assume the debt? What about the cash on the balance sheet? The seller must also think about the tax consequences and liability burden by rationalizing the differences between a stock and asset sale. 

The price discussion may become increasingly complicated as parties introduce the addition of earnouts, roll over equity, and R&W insurance. An investment banker can negotiate these complex elements while keeping in mind the seller’s obligations, preferences, and demands.

Most sellers who are considering a sale of their company already have interested parties, but they often do not realize how a banker can bring in additional parties that will undoubtedly drive up the sale price. 

Colonnade did a case study to demonstrate the importance of bringing on a banker to introduce more parties to the deal. The company, without a banker, received four unsolicited offers (highest offer: $40 million). With Colonnade’s help, the company received an additional 16 offers in the IOI stage (highest offer: $51 million). During the final bid process, seven parties remained (highest offer: $53 million). The winner ultimately paid 50% above the unsolicited offers at a $60 million purchase price due to competing buyers pushing the price up and improving the terms.

In the case study, the process took a total of 16 weeks from the time Colonnade was hired. During this time, Colonnade performed thorough diligence (business, accounting, legal, and technology), developed comprehensive financial models (using several valuation methodologies), created a vetted buyer list (using an extensive database of private equity firms and strategic buyers), produced and distributed marketing materials (by performing an abundance of data analyses), loaded and maintained a data room for buyer due diligence, and kept in constant communication with buyers until the company ultimately closed a deal with one party.

If you are ready to sell your company, consider hiring Colonnade as your banker. 

For more on deal structure: Podcast Episode 007

For more on diligence: Podcast Episodes 003, 004, 005, and 006.