bankers already have a handle on the art of the deal—at least the real dealmakers (not just your interns and entry-level analysts and associates at big firms). They've done this at least a dozen times already, and they should know what to say. They should also know the pitfalls you may be overlooking.
Established firms have teams to work on preparing M&A pitchbooks, and this may help you save time and energy so that you can spend more of your time focusing on running the business rather than being distracted.
They Can Run Valuations
Bankers are also experts at running valuations. They do it every day. Whether you want to use them to run the whole process, from testing the waters of the market to closing, or you and your board need a third-party valuation opinion for liability purposes, or you simply want them to check interest in additional bids after receiving an inbound offer, they can help.
They See the Maximum Potential Value of Your Startup
Investment bankers have a whole different perspective on company value. They can see a lot of the strategic value you may otherwise be leaving on the table.
They have a big picture view of the M&A horizon. They understand what's happening in the market in ways you may not see or that haven't been reported in the media yet. At the least, it's hearing that potential version of a sale and what's possible. (Just remember their motivations.)
They Handle the Paperwork
They can handle a lot of the paperwork. You should know your way around LOIs, purchase agreements, and so on. You want to be educated, and you want to know what to look for in the fine print and not be taken for being a complete novice.
Though the paperwork is intensive, it is important. Every clause can be impactful. Letting a pro take care of it for you can be more efficient and may help you avoid serious mistakes—at least with your first rodeo.
They Know the Players
If they've been in the business for a while, bankers know the other players in the field. They know which companies may be looking to acquire what types of startups, who is really buying, the good buyers versus the bad ones, and so on.
They should also have connections to the right departments and decision-makers so they can get you through to some of your target buyers much faster than starting cold.
They Know How to Stretch to Help Get Deals Done
Bankers are also deep into corporate finance, so they know how to help buyers stretch to make acquisitions. They can help them raise capital and find loans to buy people out if they need it.
Getting the Right Advice
If you've made it this far, you already know the power of great advice. So how do you continue to get great advice through the M&A transaction? How do you pick the right investment banker for your deal?
Choosing the right banker is important. So is balancing their advice with input from your existing trusted advisors and your gut instincts.
Trusted Referrals
This is not a service you want to play Yellow Pages roulette with or rely on Siri for. Look to your investors, advisors, and other founders who've recently exited for recommendations of trustworthy and capable investment bankers.
Long-Term Experience
Just as your startup has no doubt involved years of trial and error and iterating, so does investment banking and M&A. You don't want to be one of the first guinea pigs for someone who is new to this role.
It can take years to encounter and master the nuances and gotchas in selling companies. Find someone who has been around long enough to be truly knowledgeable.
Investment bankers who have been involved in numerous transactions have probably developed not only the expertise but also the pattern recognition for how to handle certain situations they may have experienced in the past.
That pattern recognition ultimately optimizes your potential outcome.
Domain Experience
Beyond the general sell-side M&A experience, you want a banker who has experience specific to your space and type of business—someone who knows health care or SaaS or marketplaces, or whatever your angle is.
They'll have experience dealing with the complications, and they'll know the nooks where value is hiding. They will have a strong Rolodex of contacts that are on your target buyer's list.
In addition, don't just look at company brand names. It is the individual you will be working with that matters most. That person should be an expert in the size of transaction you are hoping for. This is also important for ensuring fee scales align.
Not Just What You Want to Hear
You don't want to choose the banker who only tells you what you want to hear, makes it sound easier, or who promises you can sell for the highest, top-line price. That's a huge red flag for disaster later. In truth, you don't even have to really like your banker.
You need someone who will be straight with you, who will prepare you well for what's ahead, and someone who will be honest, even if that person knows you won't like it.
Breaking Down the Fees
How much do investment bankers cost? What are their fees? Is it worth using them?
Some say they are too expensive. Others find they are a bargain and wouldn't consider ever taking the DIY route. There may be some scenarios in which you already have a strong M&A team or have a substantial head start in strategizing and preparing for an exit.
In other cases, taking the do-it-yourself approach to selling a large company is like someone without the right education or experience trying to put on his or her own legal defense in a life-or-death situation, or a non-physician hospital owner jumping in to perform open heart surgery. You can imagine the consequences and lawsuits.
Investment bankers can charge a variety of types of fees, as shown in figure 3.1.
The following sections examine these fees in more detail.
Retainers and Up-Front Fees
Just like any good attorney, marketing agency, or consultant, you can expect a good banker to ask for a retainer. This ensures you are serious and ensures the banker gets paid for his or her time.
