When I sold my first company, I used a banker, an M&A advisor. When I sold my second, I did not. Not using a banker the second time was a mistake.
The benefits are nonobvious, somewhat counterintuitive — and large.
You don’t get THAT much from a banker for their seemingly huge fees:
- They don’t get you another offer. It’s too late by the time they jump in.
- They don’t get you a better price just by hiring them. You’re going to be negotiating price yourself, in the end.
- They don’t do much work for you. They don’t really do a lot of the administrative and diligence work. They are pretty lazy, in fact — compared to you at least. They just want the deal to close and collect their fee.
So why hire a banker?
- They create the illusion you have another offer, and a real sense of scarcity. If you don’t have a second offer, they create an illusion you do, or at a minimum, create fear you will get another offer. They will definitely get you into “play” in some fashion, even if realistically, there isn’t often enough time for another (or at least better) offer to come in. That’s enough to get the price up. This pretty much always works.
- They end up getting you a better price by “accident” — by just being there and part of the process. Why? Because they act as the “bad guy”. They take pressure off you. After all, you have to go work with the Acquirer after the deal. The banker doesn’t. They can push you, and the Acquirer, to get the highest price you’d get in a vacuum. This more than pays for itself.
- They don’t do the grind work, but they buffer some of it out. It’s exhausting dealing with corporate development and all the diligence and people demands. Especially, most especially, if you are running a business yourself at the same time. Just putting someone between you and them, even just as a filter — huge payoff.
- The entire process changes — for the better. Corporate development, CFOs, etc. just treat the process with more respect if there’s a banker. Not necessarily because they respect the banker (though usually they do) — but because the acquirer execs then believe (perhaps wrongly) that they can no longer 100% control the process.
Obviously, if you’re acquired for $1 billion+, you’ll hire a banker. And I’m really talking here about when you get an in-bound offer, and using a banker after that to help you. I really don’t think bankers can “sell your company” if you don’t already have one in-bound offer.
Now, I have one partial caveat: The Very, Truly Friendly Offer. If an offer comes in from a CEO you truly know well already, you still want to hire a banker. But you don’t always want the banker to take over the process. Sometimes, Very Friendly Offers can sort of fall apart when they end up seeming like 10x more work at 5x the price of the initial offer. If it’s a Very Friendly Offer, still hire the banker to create another potential offer. But you may still need to be the front person with the potential acquirer.
But my learnings: if your deal is > $100m or so, hire a banker, period. If it’s > $50m or so, hire a banker that’s not too expensive.
(note: an updated SaaStr Classic post)