Hiring a Banker vs. Running a Process Yourself
We knew who the likely acquirers were, and already had relationships with them. We thought long and hard about whether to hire a banker, or to just run the process ourselves.
Timing is everything when running a sale process. After our two most direct competitors were sold at good valuations, we knew it was time to explore a sale. We were growing rapidly, receiving plenty of inbound interest, and were the largest standalone player in our space. Because we knew who the likely acquirers were, and already had relationships with them, we thought long and hard about whether to hire a banker, or to just run the process ourselves.
Don’t Let Inbound Interest From Investors Fool You
In hindsight, the investment firms that were aggressively reaching out to us mostly wasted our time. We quickly came to learn that investors with aggressive outbound sales strategies are, by definition, value-oriented investors who embody the “buy low, sell high” approach. Furthermore, the probability that an investor who proactively reached out to us would end up being the best partner were slim. Inbound interest is best used as an indicator of market interest, rather than a destination to be pursued unilaterally. Hiring a banker broadened our own perspective on the buyer universe, let us define the timing and process for a transaction, and shifted the leverage away from the investors and other potential buyers. It helped us approach the whole process from a strategic, rather than reactionary approach.
In Retrospect, Here are the Reasons We are Happy We Decided to Hire a Banker:
Full-time Job: Hiring a bank saved us an incredible amount of time. Selling your company could be a full-time job and by retaining a banker we were able to focus our efforts on running the business. We were able to hit and even exceed our financial projections during the process, which is critical to getting the deal closed.
Broaden Your Buyer Universe: In the end, we sold to a company who we initially thought might not be as interested as some other parties. We approached the market strategically, and targeted several different verticals which resulted in a highly competitive process. Additionally, private markets are inherently inefficient, and we experienced this firsthand. There were large differences both on valuation, and on other terms, between the highest bidders. If we had explored liquidity options exclusively with parties who showed early inbound interest, we would have left a great deal of value on the table.
Even the Playing Field: We were able to let the bank do all of the heavy lifting in the negotiation phase of the deal. While we thought of ourselves as experienced negotiators, the two final buyers both had parties on their side that negotiate for a living. By having a banker, it leveled the playing field. Furthermore, the bankers ended up saving us from awkwardness in the weeks and months after the deal. Instead of us looking like the “bad guys,” the banker was able to handle the issues that arose during the more contentious stage of the negotiations.
A Fee Well Worth It: Ultimately, the decision to hire a banker needs to involve a cost benefit analysis. In our transaction, the fee ended up being a fraction of the financial benefit they were able to negotiate. Equally important was the fact that they were able to guide us through, and negotiate, the many non-financial terms of the deal, which has already made life after the deal go much more smoothly.