If so, read this article and always think twice before accepting the first offer...
In today's competitive market, private equity (PE) firms are increasingly bypassing traditional channels and making more and more direct offers to business owners. While this might seem like a golden opportunity at first glance, there are significant reasons why business owners should consider engaging an experienced advisory firm before deciding to engage in discussions with a single potential buyer.
Many owners underestimate the complexities and challenges of an M&A process and frequently believe that they can independently manage a transaction, only to eventually recognize that the amount of time and expertise needed to run a successful process can be incredibly demanding (especially if it comes on the top of daily to-dos of running and growing a private business).
If a private equity firm has contacted you, and you are considering selling your business, it may be crucial to consult with an experienced boutique investment bank to leave no stone unturned. Here’s why:
1. Valuation
One of the key elements in selling a business is determining its value. By engaging seasoned investment bankers, you can obtain a practical valuation assessment, using methods that are in line with how actual buyers in the private markets evaluate acquisition targets.
Bankers manage a competitive sales process and possess an extensive network of contacts, which can be a valuable asset in identifying the ideal buyer for your business. Potential buyers such as private equity firms, family offices, strategic investors, independent sponsors, and search funds are just a few examples.
Bankers have the ability to invite multiple buyers and buyer types to the negotiation table, which tends to provide significant negotiation leverage for sellers when it comes to valuation and deal structure.
The combination of a wide network and a competitive process enhances the likelihood of finding the right buyer who not only meets your financial requirements but also shares your vision for the future of the business.
Experienced bankers are also well-informed about market cycles, sector-specific trends, and understand the nuances of different industries; these are important factors when it comes to positioning your company and creating the overall narrative around your business and its future prospects.
Besides trying to achieve a high valuation, having a deep understanding of deal structure could be just as important. Business owners often overlook the structure of a deal, but those terms can lead to material differences in gross and net transaction proceeds.
All things considered, selling a business is a time-consuming and stressful process. An investment banker can alleviate much of this burden, allowing you to focus on running your business and maintaining its value during the transaction process. A banker can significantly mitigate the time and stress associated with selling your business through proficient management of timelines, coordination with various stakeholders, and vigilance in maintaining process efficiency.
PE firms (or strategics’ for that matter) go through dozens, if not hundreds of M&A processes and often aim to acquire businesses at the lowest possible price to maximize their returns. They are experienced buyers and negotiators in a process that is one of many for them, yet it may be a once-in-a-lifetime transaction for you…
2. Negotiation & Deal Structure
Dealing with negotiations and structuring a deal can be quite complex, especially for business owners who are not well-versed in M&A transactions. The expertise of a banker in negotiating and structuring deal terms can be highly beneficial, ensuring that you obtain the most favorable terms for your transaction. Bankers can offer advice on crucial elements like earn-outs, seller notes, rollovers, indemnification, and financing arrangements, assisting you in navigating the intricacies of the M&A process.
It is also important to note that the power dynamics before and after signing a Letter of Intent (LOI) can shift significantly, which can greatly impact the outcome of the transaction.
Before signing an LOI, the seller generally has more leverage in the negotiation process.
At this stage, the seller can engage with multiple potential buyers, creating a competitive bidding environment that may result in higher offers and more favorable terms. The seller can also use this opportunity to evaluate different buyers based on their financial capacity, strategic fit, and likelihood of closing the transaction. During this period, the seller can be more selective and assertive in negotiating deal terms, including valuation, payment structure, and other key provisions. This is the time when the seller can gauge the interest of potential buyers and push for better terms in the LOI.
Once the LOI is signed, the power dynamics typically shift in favor of the buyer.
The signing of the LOI often includes an exclusivity period, during which the seller agrees not to solicit or entertain offers from other potential buyers. This limits the seller's options and weakens their bargaining position. During the exclusivity period, the buyer conducts due diligence and negotiates the definitive transaction documents. The buyer may uncover issues or risks that can affect the valuation or terms of the transaction. In such cases, the buyer may have increased leverage to renegotiate certain aspects of the deal or request additional indemnities or protections.
Furthermore, after signing the LOI, the seller may face increased pressure to close the transaction, as the process has already consumed significant time and resources.
At this stage of the process, without the guidance of a seasoned investment banker, business owners might agree to terms (or agree to modify existing terms) that are neither reasonable nor in their best interest, which can lead to unfavorable or suboptimal conditions and outcomes.
3. Risk Mitigation & Process Management
Dealing with the intricacies of selling a business comes with various risks, ranging from regulatory adherence to operational interruptions. Investment bankers excel at recognizing and minimizing these risks, guaranteeing a smooth transaction process devoid of unexpected issues. Additionally, a key responsibility of your investment banker in the due diligence phase is to uphold transparent communication, drive progress, and reach set milestones. An important lesson we acquired through experience is that delays can jeopardize deals. Simply put, time kills deals. It is essential to engage a banker to facilitate the successful completion of your business transaction while maintaining the optimal value as outlined in the LOI.
During the due diligence process, investment bankers are integral in managing the deal process and assisting you and your internal deal team as complex (and often overwhelming) buyer requests start filtering in.
Bankers are knowledgeable in anticipating, preparing for, and addressing buyer requests, which helps alleviate stress for the business owner and safeguards the business's value throughout the transaction. An extremely important aspect of the due diligence period is keeping the timeline. Time can easily, and often does kill deals. Having a banker with the experience to push the process forward and tackle the weekly to-dos can prove to be essential.
It is also essential that sensitive information about your company remains confidential throughout the M&A process. A banker will manage the process discreetly, maintaining confidentiality and protecting your company's intellectual property and trade secrets throughout the entire transaction process. This discretion helps safeguard your relationships with customers, suppliers, and employees.
Crucially, the business must continue performing well during the due diligence phase. Bankers shoulder much of the transaction burden, allowing the business owner to concentrate on maintaining and enhancing the business’s current state. This setup guarantees that the business remains appealing and valuable throughout the sale process.
4. Podium`s White-Glove Approach
At Podium Partners, we adopt a personalized approach tailored to the needs of each business owner and deal situation, recognizing the unique attributes of every transaction. Regardless of whether your business falls below the $100 million mark (i.e., it is below the radar screen of most elite advisory firms), we believe you deserve top-notch representation.
Podium Partners specializes in representing family owned and operated businesses in the lower end of the middle market. Over the years, we have developed a vast network of relationships and fine-tuned a deal process that is akin to that of what middle market companies are used to when they engage larger investment banks with regard to their M&A efforts.
We are strong believers that business owners in the lower middle market deserve and need advisors who can delve deep into your business and guide you through every stage (and ups and downs) of an M&A process.
Podium Partners knows what PE is looking for; by leveraging this knowledge we can create a compelling narrative to present your business in the best possible light. By highlighting your company's strengths, identifying growth opportunities, and addressing potential concerns, a banker can help you craft a persuasive and targeted marketing strategy. This strategic positioning increases the likelihood of attracting high-quality buyers and generating competitive offers.
A well-prepared and professional business presentation can greatly impact how potential buyers perceive your company. Over and above identifying the right set of potential buyers, skillful investment bankers develop detailed marketing materials such as teasers, confidential information memorandums (CIMs), financial models, and other promotional documents to showcase your business's strengths and growth prospects. These materials are vital for attracting serious buyers and streamlining the due diligence process.
At Podium Partners, we pride ourselves on delivering and trusting our comprehensive 8-step approach to selling your business. We do this by helping business owners understand market trends, potential future opportunities, and strategic considerations that can impact long-term success. Additionally, we utilize our strategic partnerships with law firms, wealth advisors, and other professionals to ensure our clients access to proper representation and thoughtful advice on all sides of the deal process. This broader perspective helps our clients make well-informed decisions that are aligned with their overall goals and aspirations.
Final Thoughts
While a direct offer from a PE firm might seem attractive, business owners stand to benefit significantly from engaging a boutique investment bank like Podium Partners. From maximizing valuation and structuring the deal to managing due diligence and maintaining confidentiality, the expertise and support of an investment banker can make a substantial difference in the outcome of a transaction.
At Podium Partners, we pride ourselves on delivering exceptional value, strategic insights, and unwavering support to ensure our clients achieve the best possible results. Although our approach, process, and rolodex are valuable assets, the true key to our success lies in our team. Comprised of elite professional athletes, our team has been leveraging the skills, discipline, and dedication acquired in the sports arena to achieve unmatched success in boutique investment banking.
When you opt to collaborate with us, you are embracing the determination and work ethic of professional athletes who will be there for you and your company from the very beginning to the very end of the deal process.
Testimonials from previous clients are available upon request and can illustrate the tangible benefits and peace of mind that come with our professional representation.
Free Confidential Consultation
If you are a business owner who has been approached by private equity firms, or if you are considering selling your business, we invite you to contact us for a free consultation.
Let Podium Partners guide you through the process and help you unlock the full potential of your business. For more information, please reach out to our Vice President of Business Development, Lucas Gielen (Email: lucas@podiumpartner.com; Cell: 718-200-5086).
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