The Real Value of a Middle Market Investment Banker
Would it surprise you to learn that finding a buyer is the least important service provided by an investment banking firm? Yet 84% of middle market business owners surveyed also said the final sale price they got for their firm was equal or higher than the initial sale price estimate provided by their banker.
Indeed, managing the sale process is the most valuable service investment bankers provide, allowing owners to concentrate on running their business, according to a Fairfield University study on “The Value of Middle Market Investment Bankers,” published in September 2016. While nearly six years old, the study is the only objective one we’ve seen on the subject and, we believe, its findings are still just as relevant today.
“Simply uniting a buyer with a seller is not the primary value driver for most sellers of middle market companies,” said the study, which surveyed 85 business owners who sold their businesses for between $10 million and $250 million. “Investment bankers add value for their clients in several ways, many of which derive from the fact that the market is highly inefficient, organized to favor an experienced buyer over a one-time seller, and the lack of internal resources and time to consummate a transaction, while simultaneously running a business.” Investment bankers, the study says, “level the playing field between experienced buyers and novice sellers in the M&A market in the same way that attorneys do in legal matters.”
Notably, the study also found that “regular users of middle market investment banking firms such as private equity firms are convinced of investment bankers’ value, as virtually all private equity firms hire investment bankers when selling their portfolio companies.” They must know something.
We thought you might find this relatively short study (only 26 pages of double-spaced type) interesting. If you do find yourself in the market for selling your company, we hope you’ll keep FOCUS Investment Banking in mind.