Find the Right Investment Bank for the Deal

by | Mar 20, 2023 | PKF Texas - The Entrepreneur's Playbook®, Insight-Post

Selling your business might feel like a race to get to the finish line, but there are steps to consider so you’re best prepared. An investment banker is a key player in the sale process, but not just any investment banker. In this episode of PKF Texas – The Entrepreneur’s Playbook®, Audit Director Chris Hatten, CPA, CVA, CM&AA, discusses scenarios of the investment banker’s role.

Jen: This is the PKF Texas – Entrepreneur’s Playbook®. I’m Jen Lemanski and I’m back again with Chris Hatten, a Director on our Transaction Advisory Services team and one of our Approachable Advisors™ here at PKF Texas. Chris, welcome back to the Playbook.

Chris: Always look forward to it, Jen.

Jen: When we talk transactions, one of the big players is usually an investment banker. Are they able to sell every single company that comes across their desk?

Chris: Well, the short answer is no.

Jen: Okay. So, if that’s the case, when does that happen? What are the next steps? If they can’t sell the business, what does that look like?

Chris: Well, and this is another instance where that probably happens more times than you’d think as far as them not be able to take some businesses to market. And the first example I’ll say is that the company still ends up working with an investment banker, but it might not be the original one that they thought they were because you could have specialized practice in the medical space. And you’re talking with an investment bank who their wheelhouse is manufacturing, distribution.

Jen: Those are two different things, potentially.

Chris: Exactly. And you want somebody who’s going to sell your business and maximize the deal value for you because end of the day, you do want to make as much money as you can or somebody who’s going to be able to negotiate all those details to your interest. And so, and you should be doing this anyway. You should be talking with multiple investment banks and finding not only a good personality fit, but just from an expertise standpoint, you want to be working with somebody who is, again, going to help you be able to get your deal across the finish line.

The second one I would say is that there are some businesses that just aren’t a good fit for an investment bank, and these ones typically go to a business broker or another M&A intermediate area and they’re on the smaller side. And so, they’re at the lower end of the middle market. And you know, if they’re on that spectrum, and these are usually your owner-operated businesses, closely held family business that don’t have some type of private equity backing, and their total transactional value might be in one to two million tops. And so, these are a smaller business.

Jen: Are they going to want to take on that type of engagement essentially?

Chris: Exactly. Everybody wants to make money. And so, typically these are the type of businesses that cater to a certain type of investor. And same thing with the investment banks, where they typically work with the family offices, private equity, and larger-scale investors. Where we’ve also been referred into a lot is via the investment banks, is where they identify some of these businesses. And let’s say that they can’t make heads or tails from the accounting records that they have.

Jen: They get in there; it’s too messy. They’re like, “Nope, I don’t want to deal with it.”

Chris: Yeah. And that might be because you have a company that doesn’t… a lot of owner-operated businesses are still on the cash basis. And they might not have the formal policies around a hard monthly close. And so, you look at their P&L and it’s potentially all over the map because you’ve got January transactions that are being recorded in February or February and vice versa, just because there’s not a hard close. And so, they need somebody to kind of go in and do some, we’ll say accounting assistance type work. And so, on the transaction side, that’s not even so much our wheelhouse. And so, we might talk with the business advisory group about saying, “Hey, this is what we’ve got. Is this something you can help out with?”

And that’s going to require them spending, actually, probably a decent amount of time getting that company cleaned up and ready to go to market. And so, they could help them establish policies around getting that monthly close set up, potential accounting policies around capitalization versus them potentially expensing a bunch of stuff for tax planning purposes, we’ll say. And some people might be just using some older accounting systems. And so, they would be able to help them implement, even if it’s just something like QuickBooks, which a lot of our multimillionaire clients still use. But it’s something more robust so that as they’re going through that sales process, they’re able to generate records that actually make sense.

Jen: That’s kind of key.

Chris: It helps. But also, as long as you’re taking time out to do this if the investment bank is getting you sent to a different advisor to help you get cleaned up for that sales process, you do want to take advantage of it as best you can. And so, what we talk about is there some non-discretionary spending in there, or I should say discretionary spending in there, that can be worked out of the business without affecting operations. And so, then during this process you’re making your bottom line look better and then makes a far more compelling story when you do go to market that can help get you set up. And then sometimes they’ll just actually maintain the accounting records for you until you actually go through the sales process. And again, it just makes it so much easier for the investment bank, as well as than the potential investors, to sit there and take those financials and benchmark them against other companies.

Jen: They’ve got a more clear picture of the business.

Chris: Exactly. And so, as long as you’re going through all that process, you want to just add as much value as you can. I know that the buyers already got it in their head that they want to sell the business, but as long as you’re actually having to just kind of divert it off to a side card for a section, you want to sit there and make sure that you’re doing as best you can because there are other businesses out there that are wanting to go to market as well.

Jen: Right. And maybe more ready.

Chris: Yeah. Exactly. So, it’s just you’re putting a little wax on the car before you put it out on the deal floor, you could say. So, there’s a lot of times that there are companies that aren’t ready to go to market but there are other avenues that you can sit there and go down to make sure that it’s not a lost cause and that you actually do come back better prepared. And then the investment bank… they’re always willing to pick that conversation back up and then again take a look at things. And when they’re cleaned up, it just makes for a more compelling story.

Jen: That makes a lot of sense. Well, we’ll get you back to talk about some more transaction-related items soon. Sound good?

Chris: Sounds good, Jen.

Jen: For more information about this and other transaction-related topics, visit This has been another thought leader production, brought to you by PKF Texas – The Entrepreneur’s Playbook®. Tune in next week for another chapter.

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