Nate Nead is the Principal and Managing Director of InvestmentBank.com, a middle-market investment bank with a keen interest in providing software for greater collaboration among other investment banking firms.
His personal expertise spans numerous industries including software & technology, chemical distribution, oil & gas, digital marketing and business services.
Can you tell us a little about Investment Bank? What services do you offer?
We provide investment banking advisory services across the middle market including mergers and acquisitions advisory, capital formation assistance and strategic exit planning. We also have built an advanced financial technology solution that includes deal origination and collaboration tools for better and quicker deal facilitation including CRM, marketing automation, project management, virtual data room and deal matching software.
At what point do business owners typically seek out your services?
Most business owners seek us out when they are facing advisory needs for some type of capital event. A capital event could include M&A, restructuring/recapitalization or a capital formation project. If a client is in need of selling a business the capital transaction typically occurs as part of a greater discussion revolving around estate and retirement planning. Otherwise, we also work with high growth companies seeking to advance to the next level.
What options do business owners have when they decide they want to leave their business?
Business transitions are extremely complex and there is no one-size-fits-all solution. Deciding which path is right for an owner is as much a byproduct of personal preference as it is return maximization. Some owners may simply want to sell their business for maximum value while others may be more focused on transitioning to existing management through a pre-arranged Management Buyout.
To be more specific, the options could include, but are not limited to a minority/majority recapitalization, a full acquisition. In facilitating these types of transitions, the buyer could be internal (family or existing management) or external (strategic or financial). The structure of any deal will include a host of creative options (e.g. debt, equity, ESOP, EB5/EB1C, etc.)
What considerations should business owners make when deciding what strategy is right for them?
Timing, business valuation, micro/macro trends and personal issues/desires all play key roles in making a decision relative to a specific capital transaction. The right move for one, may be the wrong move for others.
Sometimes maximizing value in a sell-side engagement is trumped by the desire for the owner to see his/her legacy last much longer after they are gone. The deciding factor in which direction is most viable is likely to be different for each business owner.
What is the process for determining the value of a business?
Valuing a company can be done in a number of different ways and often includes both qualitative and quantitative metrics. In addition, valuations from sell-side investment bankers are likely to look very different than those produced from buy-side investment bankers. The process is typically the same and includes taking a look at the company's historical financial statements - most importantly the balance sheet and income statement -- and determining realistic projects of the future and discounting those projections using the Weighted Average Cost of Capital (WACC). Multiple methods for valuation are essential, however, and can help in determining a relative and reasonable valuation range on the business.
When should business owners start when planning an exit strategy?
Ideally exit planning should begin years in advance. This allows time for all knowledgeable professionals to provide needed input and insight into how the transaction could best be structured for the selling business owner. This is especially true for companies in the lower middle market that may need some balance sheet cleaning and proper preparation for estate and tax planning. In some cases, a longer horizon is needED to clean up the business and give it 18 to 24 months of quality growth in the historical financials in order for it to sell at maximum value.
What do you think are the biggest mistakes or oversights they make in this process?
There are nearly innumerable ways to foul-up a transaction. A couple of the biggest mistakes that can be made are to go into a full sell-side process having 1. an unrealistic expectation of the company's enterprise value and 2. a lack of true commitment to the sale. Nothing is worse than burning a bridge with the most strategic buyer in a market when a seller decides to back-out in the 11th hour. Most sellers, particularly those in the lower middle-market have an unrealistic idea of what their business is worth. This tends to be the No. 1 deal killer.
How do you help them navigate the process of leaving their business?
Finding the right buyer for a business is almost always the best possible transition strategy for business sellers. That can take patience and perseverance. In addition, the sale of one's business can be an extremely emotional process and because the process itself is high-stakes and involves a lot of nuanced complexity it is helpful to have an experienced advisor assisting on the deal. This helps to alleviate some of the natural emotion inherent in the process.
How the process is run depends on the nature of the business and the desire of the seller and buyer in the deal. The process itself could be a targeted solicitation, a limited auction or a broad auction. It helps to have an experienced advisor to assist in choosing the right process and manage it effectively.
Why should business owners consider enlisting the help of an expert like you? What are the risks of taking a DIY approach?
I always tell clients that the biggest risk to selling a business by yourself is that sellers typically only sell a business once or twice in a lifetime, but buyers typically acquire multiple businesses each year. Buyers with more experience tend to take advantage in ways business owners may not foresee. Whatever the motivation for attempting the process alone, the cost to doing so is almost always greater than using an experienced sell-side M&A advisor.