The investment banking side of our practice focuses on businesses with an enterprise value of $5 million and higher. Companies in this size range are often sold at prices higher than indicated in a Fair Market Value determination. The reason is that FMV assumes a hypothetical buyer. A specific buyer may receive synergies or accrue strategic benefits over and above FMV. We identify such specific buyers who can pay a premium over FMV and market directly to them.
This premium value (investment value) will not be automatically offered by the selected buyers. It is typically captured using a controlled auction technique or the credible threat of one. For this sale process to be effective, there must be multiple prospective buyers in order to create the sense of urgency and fear of loss for the ultimate actual buyer.
The first step in the process is to determine the Fair Market Value of the business which will set the baseline. It is analogous to a reserve bid in an actual auction. While JAI staff will collect the information, the final determination of value is made by an independent, third-party professional accredited in business valuation by the American Institute of CPAs. Our role in the process is to compile the information package for the valuation firm in a way that best highlights and explains the unique characteristics of the business. Our intent is to achieve the highest supportable value. Upon completion, we present and explain the report. The owner then decides whether or not to proceed with a sale.
Prior to marketing, we prepare offering materials and develop a list of prospective buyers who we then proactively contact. The written document, commonly referred to as the Confidential Memorandum, is prepared collaboratively by the primary intermediary with support from our accountant who had performed the valuation, the supporting intermediary and our senior management.
We also produce a choreographed video presentation including a walking tour of the facility and interview with the owner. The goal is to consistently and accurately present the business without having to visit the location. This protects confidentiality and keeps you focused on your operations. The completeness of presentation allows our firm to demand a written indication of interest from the buyer with price and terms prior to an actual meeting.
Through the marketing phase, we are collecting the information that will subsequently be required during due diligence. Having the materials prepared in advance speeds the sale process and maintains critical momentum.
Once we have come to a basic agreement on price and terms with the best buyer, we will continue to work with your advisors and those of the buyer to craft the best possible deal. Owners typically want to maximize total consideration at closing while minimizing taxes and the buyer’s post-closing recourse.
We caution business owners to not select their advisors based on billing rates or friendship. This is a highly specialized area of practice. The skill and experience of the professional advisor can have a significant impact. We will be pleased to provide you with a list of M&A attorneys, accountants and financial advisors that will guide you through the process. We provide a similar list to the business buyers because it is in your interest that the buyer be well represented to avoid derailments due to poor counsel.
Our most recent “Working with Private Equity Groups” seminar is available to watch at no charge and is designed to provide business owners with guidance on how best to either partner with or sell their business to a private equity firm. While private equity might not be the best path for meeting your objectives, it is beneficial to understand how professional business buyers evaluate investment opportunities. The link to the videos for entire program is to the right.
