At Parcion Private Wealth, we understand that selling your business is more than a financial transaction – it's a defining moment that impacts your legacy, your family, and your future. That's why we partner exclusively with business owners and their families to assemble a team of seasoned professionals invested in their success and dedicated to optimizing this pivotal transition.

With the right blend of skills and perspectives, experienced professionals provide insights and capabilities that extend beyond what most entrepreneurs can achieve independently. Their guidance ensures that you're prepared to optimize and align results with your vision and goals.

For many business owners, this is the most important decision they'll ever make – one they may only experience once. A key part of this process is selecting and working with an investment banker, whose expertise can elevate your business sale, help you navigate complexities, and position you for lasting success. Here's how to make that decision and what to look for in this critical partnership.

WHY USE AN I-BANKER

While it is certainly possible to sell your company entirely on your own, it's likely that an investment banker on your side will result in better deal terms, a higher sale price or both. Indeed, those are the main reasons so many business owners seek out I-bankers.

For example: In one study, 84 percent of the surveyed group—business owners who sold their businesses with the help of investment bankers for between $10 million and $250 million—said the final sale price was equal to or higher than the banker's initial sale price estimate.

There are many reasons why these results occur. I-bankers tend to possess knowledge and skills in key areas that can help you get better results than you could achieve on your own. Key skills they bring to the table include:

• INDUSTRY EXPERTISE. Knowing your industry and the various players within it can enable investment bankers to identify more potential buyers.
• KNOWLEDGE OF POSSIBLE BUYERS. They know what different companies are looking for and the types of deals they are likely to make. This can give you more choices as well as greater negotiating leverage. They can also find buyers anonymously, thereby protecting your confidentiality as the seller.
• CREATING FINANCIAL MODELS AND MARKETING MATERIALS. As part of their work in selling a company, investment bankers will develop extensive financial models—explaining, for example, valuation. They will also construct pitch books and other marketing material.
• STRUCTURING THE SALE. There are different ways to structure a deal, such as incorporating an earn-out for the owner or the deal being an asset sale. An investment banker can be instrumental in determining the appropriate structure.
• SCREENING POTENTIAL BUYERS. The investment banker can separate the wheat from the chaff by identifying the really interested, legitimate candidates to purchase your company.
• NEGOTIATING THE SALE. Using competent experienced professionals to bargain on your behalf can be very effective in making sure you get the best sale price.
• PROVIDING AN OBJECTIVE AND REALISTIC ASSESSMENT OF THE OPPORTUNITIES. Sometimes business owners get very emotionally wrapped up in the sale of their companies and along the way become somewhat unrealistic about the end result. Investment bankers can be important "reality checks."

Pro tip: Enlisting an I-banker can be a good idea even if you have already identified one or more potential buyers and don't need help in that area. For example, say you lack experience in business sale transactions. You might end up with a subpar deal if you do it all yourself. What's more, an I-banker can find additional potential buyers apart from the ones you know—and create a competitive situation that could lead to a higher sale price for you.

SIZE CAN MATTER

There's an important caveat to working with an I-banker: These professionals tend to add the most value for owners of businesses valued at $1 million or more. And the greater the valuation above $1 million, the more likely engaging an investment banker would be a smart move.

Corporate attorneys who strongly recommend using an investment banker, by company valuation:

• Valuation less than $1 million — 41.1%
• Valuation from $1 million to $10 million — 91.6%
• Valuation greater than $10 million — 100%

SELECTING AN INVESTMENT BANKER

If you decide that engaging an investment banker is a good idea, you'll need to find talented investment bankers who are likely to be a good fit for you and your company. The process for choosing an investment banker typically follows this path:

Positioning as a Thought Leader → Referrals from Other Professionals → Evaluate Investment Banker → Negotiate Engagement with Investment Banker

Most investment bankers for private companies are referred by other professionals working with those company owners. Corporate attorneys, wealth managers and accountants are often recommending investment bankers to business owners who are interested in selling their companies.

Another powerful factor is the investment banker's reputation among privately held companies. As with all high-end professional service providers, you should be looking for industry thought leaders who demonstrate their expertise regularly.

When introduced to an investment banker, you still have to take a measure of the person and the firm. One good way to do that is to examine the financial models and marketing materials they have produced for other companies. You might also ask questions such as:

• "What transactions comparable to mine have you completed in the past three or so years?"
• "Do you have expertise with businesses in my specific industry?"
• "What were the sizes of these sales?"
• "What companies were they sold to?"
• "How do you put together your buyer's list?"
• "How many engagements did you have over the past three years that failed to close? Why?"
• "What do you see as your role in the sale?"

ENGAGING WITH AN INVESTMENT BANKER

Once you have selected a banker to work with, you should negotiate the engagement. According to all the corporate attorneys surveyed, it is a potentially big mistake not to negotiate an investment banking agreement. And about a sixth of the corporate attorneys reported that, in their experience, failing to negotiate the agreement (or not properly understanding it) resulted in litigation within the last five years.

Key data points on negotiating the investment banking agreement:

• 100% of corporate attorneys say this agreement should always be negotiated
• 15.9% report that failing to do so or properly understanding it has resulted in litigation

Some possible mistakes in these agreements include:

• Having an excessively long time frame during which the investment bank has exclusive rights. Sometimes, for example, an investment bank might ask for two years' worth of exclusivity, when six months is the norm.
• Paying the same commission for the investment banker to raise debt (easier to do) as to raise equity (harder to do).

NEXT STEPS TO CONSIDER

If you believe an investment banker could add value to your business sale, it's crucial to connect with a high-caliber partner who possesses the expertise, experience, and industry insights necessary to achieve optimal results. Carefully vet anyone you work with, ensuring clarity around the terms of engagement and the services they will provide. Being deliberate in this process is key to achieving the best possible outcome.

At Parcion Private Wealth, supporting business owners and their families in unlocking the true potential of their wealth through optimized transitions is what we do. We understand the unique complexities and considerations that accompany the sale of a business, and we're here to guide you every step of the way. By connecting you with a team of skilled professionals – starting with an experienced investment banker – we ensure that you're prepared, protected, and positioned for success.This content is for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained herein constitutes a solicitation, recommendation, endorsement, or offer by Parcion Private Wealth, LLC to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All content is of a general nature and does not address the circumstances of any individual or entity. Only private legal counsel may recommend the application of this general information to any specific situation.

Past performance is not indicative of future results. Any projections, market outlooks, estimates, or forward-looking statements contained in this report are speculative in nature and may not come to pass. Actual results may differ materially from those anticipated.

This report was written by Russ Alan Prince and John J. Bowen Jr. It was published by the VFO Inner Circle, a global financial concierge group working with affluent individuals and families, and is distributed with permission. Copyright 2022 by AES Nation, LLC. All rights reserved. The views and opinions expressed in this report are those of the authors and do not necessarily reflect the views of Parcion Private Wealth, LLC. Parcion Private Wealth, LLC has not independently verified the information, data, or conclusions contained herein. Distribution of this report by Parcion Private Wealth, LLC does not constitute an endorsement of its contents.

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