I’d like to share a poorly-kept industry secret that many business owners may not realize or appreciate. Investment bankers and M&A advisors are not the least bit interested in helping you do the hard work necessary to make your business sellable and attractive. The overwhelming majority of investment banks and bankers have very short attention spans and are entirely focused on businesses or clients for whom a transaction can be successfully consummated within the next 3-6 months.
Why is this?
Investment bankers and M&A advisors are generally paid only when and if a transaction successfully closes. They have what is called a “success fee” model, which means they typically only get a modest upfront retainer upon engagement (defraying a tiny portion of their costs), with the vast majority of their compensation coming in the form of a fee (typically tied to the transaction value) that is paid when the transaction closes and the business owner or client gets their proceeds.
What does this success fee model really mean?
With their often very high, fixed overhead and personnel costs, investment banks and bankers are incentivized to minimize the amount of transaction risk they take on with new clients. This means that they focus on clients that are: (i) already “sale ready”; (ii) operate within industries or sectors that are in favor with investors and acquirers; and (iii) have financial or operational characteristics that mitigate or eliminate the risk that a transaction doesn’t happen. This means that you will not get any of their time or attention if you are a way’s away from an eventual sale and/or diligently trying to address flaws, problems or deficiencies within your business. Don’t be fooled by bankers inviting you to conferences or seminars with titles like “Is your Company Sale Ready?” or “How to Prepare Your Company for a Sale.” This is just a marketing ploy for them to identify the 5% of companies in attendance that are already “sale ready.” They IGNORE the other 95% of businesses and business owners!
Readiness is an altogether different discipline …
Getting a business ready for sale is dramatically different than actually selling it. The work and time involved is much more extensive. The skillsets required are also completely different than those needed to sell a business. Preparing means first identifying what investors, acquirers and their advisors will see as problems or deficiencies that will either dramatically reduce the likelihood of, or the value of, a successful transaction. These aren’t quick fixes, and most bankers don’t have the time, patience, skillset or mandate to help owners address these issues.
That’s where ExitMinded comes in …
At ExitMinded, we are successful bankers who chosen to focus entirely on sale readiness — the stage that comes well before you ever need a banker. The best time to start preparing for a sale isn’t when you’re ready to retire… it’s several years earlier. Our assessment identifies the material deficiencies that can reduce the likelihood of a sale or materially depress value, and empowers you to address them systematically and proactively. When the actual time comes to hire an investment banker, you’ll have a business that attracts real interest and ensures that you’ll be able to successfully move on to the next stage of your life.