I still remember the day my partner came to me in 1980 and told me our competitor had just sold his business for $15 million. I was shocked to hear it. I was making $60,000 per year, we were building our business, and it was a great ride. My partner and I never once talked about selling our business. I never gave a thought to my equity except to say that I was an owner in the business.
But this competitor’s sale really got our attention. First we realized, “Holy cow, this business of ours may be worth a lot of money.” Second, we realized our competitor was now a $100 million-in-revenue company. We were still borrowing money to finance receivables. How would we compete?
My partner called the former owner, now a multi-millionaire, and asked him what happened. The story of selling his business got us excited as we thought of the possibilities. He recommended we contact the investment banker who represented him. His name was Bernie Goldstein of Broadview and Associates.
Goldstein was a former President of the most active computer trade association in Washington D.C., Association of Data Processing Organizations (ADAPSO). I think it was the only one. Today the association is still active in representing the information technology industry as the International Technology Association of America (ITAA).
Goldstein, a former entrepreneur and later Control Data Corporation Executive, used his role as President to meet every CEO and Chairman of every technology company in the world. He had a network, as they say, which could choke a horse. He also had a sterling reputation for his leadership and intelligence. He parlayed his presidency into the premier boutique investment banking firm of the 1970’s and 1980’s, Broadview Associates.
This is the banker we called to help us sell our company. He came down from his office in Fort Lee, NJ to meet with us. He listened intently, looked over our financials and projections and told us our business wasn’t worth near what our competitors received. In spite of that fact, we contracted with Broadview Associates to represent us in the sale of our business. Our market was heating up, and it was time to sell.
Goldstein put an attractive sales offering document together for us. He sent it with a personal cover letter to the most qualified of his wealth of contacts. Within three months, we received multiple offers. He helped negotiate among the potential buyers and did a fantastic job in constructing a great deal at a fair price. We couldn’t have done it without him. On October 20, 1981, we sold our company and became employees of Informatics General Corporation, a NYSE company.
If you decide to sell your business and use an investment banker to represent you, here are four essential questions to ask.
1. Does the banker know your market?
The banker needs to know who’s who and who is planning to do what. He should also know how prospective buyers price and structure acquisitions. The more he knows the space, the better the chance of attracting strategic buyers versus private equity/financial buyers. Strategic buyers always pay more because they can drive the value of the asset (your company) after acquisition by combining it with their company’s assets. These include executives, brand recognition, customers and sales channels.
2. Would you want your brand/company associated with this banker in the marketplace?
These people will become your agents, your representatives. If the broker has an excellent reputation in your market, then expectations will be set at market prices for the sale and discourage bottom fisher acquirers.
3. Can the banker close the deal? Do you have confidence in the broker to get your deal done?
His job is to manage the sales process and set expectations for the buyer and seller in a continuing effort to get a deal done. When the negotiations get tough, it is the banker who keeps everyone’s expectations in check so the deal will close.
4. Are you ready to pay the banker’s commission?
The general fee for investment banking services is 2% of the gross sales price including all considerations. I found that these fees can go as high as 6% depending on the size of the transaction. The minimum fee for a qualified and experienced investment banker is generally $400k. Therefore to keep within the guidelines of 2% and $400k, you would have to sell your company for $20mm. If you sell it for less, the percentage goes up, and if you sell it for more, the broker will try to negotiate a higher fee for the higher price. Keep in mind it is all negotiable.
It is a big decision to sell your business. Once you make this decision, you will want the highest price. After all, you worked many years to build your business into an attractive company. If you want the highest price, consider hiring an investment banker who knows the companies who will pay that price.