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If you are considering selling your company, your situation is analogous to a person facing major surgery. The most important decision is who will perform the operation. That decision will likely determine if and how quickly the company returns to complete health. The critical decision before proceeding with the sale process is: “What investment banking/advisory firm (advisor) should I retain to handle the transaction?” This decision will likely determine whether a premium-priced deal with minimal risk to post-closing liabilities can be achieved. If you are the owner or CEO of a middle market company (defined as a company with a transaction price between $2 million and $250 million), the importance of this selection is probably even greater due to the relatively small number of advisors who effectively serve the middle market.
An advisor should have an open and verifiable track record. He should be willing to discuss any non-proprietary information related to a prior deal, except for the transaction price and deal terms, and provide a thorough list of completed transactions that defines both sellers and buyers. This record should be made available for your unrestricted investigation, and the deals should be supported by references that can be directly contacted in order to substantiate the advisor’s claims relating to prior transactions.
Talk to the advisor’s former clients and decide if their record warrants hiring them to handle the largest transaction of your career.
As a general rule, an advisor should consummate two deals per professional person per year to be defined as “reasonably good.” An “outstanding” firm should have a long-time record of consummating three to four deals per person per year.
The advisor should guide you from the beginning to the end of a transaction. He must be able to help you plan and time the sale, and he must control all aspects of the deal. The advisor’s job should not end when a letter of intent (LOI) is executed—lead negotiation responsibilities are his responsibility from the LOI until the execution of the definitive purchase agreement (DPA). This requires highly specialized knowledge in the area of reps, warranties and indemnifications—critical issues in which financial consequences can be as significant as the purchase price.