When Hiring an Investment Banker or Business Broker: Key Considerations
Deciding to hire an investment banker or a business broker is a significant step in the journey of any business owner. Whether you’re considering an acquisition or selling your company, these professionals can be instrumental in helping you navigate the complex M&A landscape. Here are a few key considerations to bear in mind before you make your selection:
- Experience & Expertise: Does the broker or banker have a proven track record in your specific industry? Their knowledge about your sector’s landscape, trends, and key players can make a big difference.
- Deal Size and Structure: Both investment bankers and business brokers have their specialties when it comes to deal sizes. Make sure their expertise matches the scale of the deal you’re planning to execute.
- Network: One of the primary reasons to hire a banker or broker is their network. Do they have strong relationships with potential buyers, sellers, or investors in your industry?
- Fee Structure: Understand their fee structure thoroughly and are often negotiable. Fee structures routinely include a retainer and success fee (and sometimes the retainer can be applied against the success fee). Fee percentages and terms can vary widely and are typically negotiable. The smaller the deal, the higher the fee percentage in most cases. Sometimes there are tiered structures on fees, i.e., a set percentage if the deal is at or below a certain amount, with increasing percentages for agreed upon levels above that (e.g., X percent for amounts above $10 million and below $12 million, Y percent for amounts above $12 million and below $14 million, Z percent for amounts above $14 million, and so on).
- Tail Period: Also pay close attention to the “tail-period,” which is negotiable. The tail is the duration of time following the termination of the engagement during which the banker/broker is still entitled to receive its success fee if a transaction is completed. The most common tails range between 12 and 24 months.
- Communication: The M&A process can be lengthy and stressful. Having a professional who communicates effectively and promptly is crucial.
- Personal Fit: Like any professional relationship, it’s important to feel personally comfortable with the banker or broker. This often-overlooked aspect can play a key role in the success of your deal.
Remember, hiring the right investment banker or business broker could be the difference between just closing a deal and closing a deal that exceeds your expectations. Take the time to choose wisely. Contact us if you have any questions or need any advice on this important step.