Finance

How to Choose The Right Investment Banker to Sell Your Business

How to Choose The Right Investment Banker to Sell Your Business
Image credit: Shutterstock
Guest Writer
CEO of Growthink
3 min read
Opinions expressed by Entrepreneur contributors are their own.

With U.S. merger and acquisition activity up 34 percent this year, now might be a very good time to consider selling your business.

Part and parcel to this exploration is deciding whether or not to hire an investment banker to help you. And then, which one to choose.

But first, a word of caution.

It is a truism among old-time investment bankers to not take on clients who "need them," The idea being that if a business owner is not capable of selling their business on their own, the business is probably unsellable.

For starters, you and your team need to have an understanding of key business sale concepts like valuation and discounted cash flow. You need to understand and articulate how your industry and market are evolving and how your business fits into this changing landscape.

Until you are able to do this, don't even attempt to sell your business.

With this important caveat, here are three battle-tested strategies for how to hire an investment banker:

1. Buy individuals, not firms. Iinformation technology and social media have leveled the playing field between big and small investment banking firms.

These days, everyone -- from Goldman Sachs and Morgan Stanley to the one and two person shops -- have access to the same deal and industry databases needed to build a "Sell Book" and deal distribution list.

As importantly, social media tools -- yes LinkedIn, but also industry-specific ones like Axial and BizBuySell -- provide the ability to connect with almost any buyer anywhere.

Because of these new realities, when choosing an investment banker, it is more important to evaluate the specific individuals who will be working on your deal, rather than the firms at which they work.

This evaluation should go beyond checking references. Consider your one-on-one chemistry and camaraderie. Also important is your communication styles. Do you like to work face-to-face, at off hours, only through scheduled meetings?

2. Build "outs" into the engagement letter. No matter how well one tries to evaluate an investment banker, nothing compares to actually undertaking a business sale process with them.

Be sure to negotiate an "out" into the engagement letter, so that you have the right to terminate the relationship at any time with no, or at the least, a limited "tail" compensation required.

Investment bankers usually resent this type of request, but if they aren't willing to cooperate, move on.

Remember: They are professional negotiators. If they're unwilling to agree to this, they probably are not as confident in their ability to get a deal done as they let on.

3. Insist on weekly activity reports. Most bankers struggle to regularly and accurately track their hours. Making them do so will help keep your deal more top of mind. Insist your banker provide you with a weekly report of activities performed on your behalf, and the number of hours required to complete them.

In short, in hiring and working with an investment banker to help you sell your business, don't check your common and good business sense at the door.

As the old adage goes -- "Trust but verify." And always leave yourself an easy way out if things start to not go as planned.
 

More from Entrepreneur

Grow Your Business at Entrepreneur LIVE! Join us on Nov. 16 in Brooklyn, NY, to learn from legends like Danica Patrick and Maria Sharapova, pitch our editors, meet with investors, and potentially walk away with funding!
Register here

One-on-one online sessions with our experts can help you start a business, grow your business, build your brand, fundraise and more.
Book Your Session

In as little as seven months, the Entrepreneur Authors program will turn your ideas and expertise into a professionally presented book.
Apply Now

Latest on Entrepreneur

My Queue

There are no Videos in your queue.

Click on the Add to next to any video to save to your queue.

There are no Articles in your queue.

Click on the Add to next to any article to save to your queue.

There are no Podcasts in your queue.

Click on the Add to next to any podcast episode to save to your queue.

You're not following any authors.

Click the Follow button on any author page to keep up with the latest content from your favorite authors.