Already Have Interested Parties Wanting to Buy or Invest in Your Company?

You Should Still Hire an Investment Bank

Founders frequently receive inbound interest from parties wanting to buy or invest in their companies. It might initially seem redundant to seek out an investment bank for help when there is already an offer on the table. But enlisting seasoned professionals to manage and drive the deal through to fruition is a high-value service that is absolutely worth it.

Founders will often tell you one of the best decisions they ever made was hiring an investment bank - even after the founders had received offers.

If you only think of investment bankers as adding value by bringing in other interested parties (“lead generation”), then you probably don’t see much value in hiring one. But that’s only a small fraction of an investment bank’s value-add. Bankers organize and run a process, generate competition, create urgency, negotiate terms, and optimize outcomes – all on your behalf.

You basically have two choices. You can try to run your own process, undertaking a full-time job that saps time and energy away from your business and personal life. Or, you can hire an investment bank to run the process for you on your behalf. An investment bank takes a fee, of course. But the evidence is very clear that the fee is usually more than worth it. The value created by the banker is often many multiples of the fee.

Founders that have chosen to go-it-alone and either manage the inbound interest, or (gasp!) run their own process, have found it difficult to manage multiple buyers or investors at once and often lack the network to create a robust market of buyers or investors. They also found themselves negotiating against professionals whose specialty is buying or investing in businesses.

Hiring a good investment bank enables the founder to focus on what they do best – growing their own business. Good bankers take the burden away from you while maximizing speed and certainty of close, optimizing the terms, and maximizing valuation.

Please note – If the inbound party was truly interested before you hired a banker, they will be interested after you hire a banker. Genuine buyers do not get scared off by bringing in a banker. Once hired, the bankers will tactfully merge any inbound party into the process.

More Parties, More Competition

To attain the best possible outcome for your company, you need to create as robust a competitive dynamic as possible. This tension is created by garnering serious interest from as many parties as is realistically possible.

This competitive dynamic between the parties will naturally create more leverage for the seller that ultimately leads to stronger bids with optimized terms as well as greater certainty of a closed transaction.

It’s not unusual for founders to see a massive increase in interested parties once an investment bank is brought onboard – and many of those parties will have been previously unknown to the founder.

Beyond creating greater competition, having more parties in the mix allows you to meet more suitors to discern which one is the best fit for your company.

You may also glean different insights from the different parties’ perspectives on your business.

Greater Urgency

Urgency is key to any process, and good investment bankers are experts at creating it.

Not only should parties feel as though there is a clear process, but they also need to know there is urgency to complete a transaction within a defined timeline. You do not want to be running a process indefinitely. You and your banker need to figure out who is really interested – and what they are willing to offer – all on a timely basis.

Healthy competition complements this effort to create urgency. Bankers will set the pace of the process, and if one party is moving at that pace then the other parties are incentivized to also move at that pace if they ultimately want to win.

Better Outcomes

Better outcomes originate from not only greater leverage and increased urgency, but from having experienced negotiators on your side. Having a team of professionals handling sensitive topics like price is the best path forward for most founders. It’s advantageous for the investment bankers to play the more adversarial role of negotiator. Emotions can often play an unwanted role at the negotiation table. It’s easier for a banker to be more level-headed about the process than it is for a founder with close personal ties to the business. Having a professional third-party that negotiates deals for a living as your advocate will generally pay off in the long run.

Besides, it’s not a fair fight when it comes to founders negotiating against professional buyers and investors. Buyers and investors know all of the tricks of the trade. You want someone on your side who also knows the tricks of the trade to level the playing field.

Negotiation does not stop with a term sheet either – it goes all the way through to the end when definitive documents are signed. Leverage needs to be applied continuously until the deal closes.

When all is said and done, and the deal is finalized, founders will, almost without fail, look back and realize what a wise decision it was to hire an investment bank to guide them through such an intricate, but ultimately rewarding process. This is the case even if you already had serious inbound interest.

Questions? Want to partner with us? Reach out to the PEAK team at contact@peak-tech.com.