The complex process of selling your roofing business or merging with another often requires professional assistance to secure the best deal. Understanding the role of private equity and investment banking firms is beneficial when you are planning to exit your roofing business.
Both parties can play a critical part in getting mergers and acquisitions (M&As) across the finish line. Discover what they do, whether you need their help, and how Axia Advisors takes the worry and confusion out of selling your business.
A Brief Explanation of Private Equity and Investment Banking
Private equity (PE) firms buy companies as an investment to sell later for a profit. These firms raise capital for deals by taking on wealthy investors as limited partners, who also earn a healthy return when the PE firm sells off a business.
Investment bankers are financial experts and advisors with a wide scope of capabilities. These service-based professionals have the insight to serve as the go-between for large and complex business deals. A significant portion of their work is functioning as advisors for business owners during M&A transactions. Axia Advisors is a prime example of investment banking experts who help business owners make smooth transitions through business sales and M&As.
As a business owner, both investment banking and private equity firms can help you make a successful transition with your company. However, before you engage with PE firms for a sale or merger, you’ll likely want the help of an investment banker.
How Investment Bankers Support Business Owners
While investment bankers can assist business owners in various ways, the work often boils down to selling companies or raising capital. In both instances, these finance pros are your ally and “matchmaker” for getting the optimal deal.
Offering Personalized M&A Advisory Services
A skilled investment banker can guide you through the M&A process as an experienced advisor. M&A advisory services bring a depth of understanding about the market and the process that you don’t usually get from day-to-day business operations.
Working with an investment banker is particularly helpful if you’ve never sold a business before. Even if you have sold a business, each transaction is unique, with specific legal and financial considerations that come from market shifts and changes in regulatory compliance.
The process often starts with developing your strategy. To do that, your advisor gets to understand your financial goals and intentions for your company’s future. Of course, the business valuation is also a key factor. An experienced firm, such as Axia Advisors, determines which methodology can provide the strongest figure for negotiations. (One way to get a ballpark determination of what your company is worth is by using our free business valuation calculator.)
Certain legalities are also important for a secure and smooth transaction. For example, your business interests and confidential information stay private with a non-disclosure agreement (NDA) and a confidential information memorandum (CIM). Your M&A advisor ensures the necessary parties have signed that paperwork before you discuss sensitive details.
Additionally, the investment banker markets your company to buyers, including private equity companies. Accessing an extensive network of high-profile connections, the team will get your business in front of the ideal prospects and present your organization in the best light.
At this stage, your investment banker represents you by:
- Receiving indications of interest (IOIs) from prospective buyers
- Negotiating with bidders
- Coordinating the signing of signing documents and closing the transaction at the moment of sale
These points only scratch the surface of what is necessary for a successful business sale. You can see why getting professional assistance makes a world of difference. Fortunately, Axia Advisors is ready to help you make a success of the M&A process from start to finish.
Raising Capital Through Underwriting
Underwriting is when the investment bank raises capital for a client organization. This typically occurs by selling stocks as equity or debt securities in the form of bonds.
As with M&A, good underwriting starts with a planning process. The investment banker wants to understand the owner’s ultimate goals for such a step. The advisor then considers the financial health of the company and its prospects to determine potential benefits and possible risks to avoid. Valuation is also a critical part of underwriting, as a company’s worth affects the price of stocks or bonds.
The investment banking advisor also needs to gauge the investor market and interest. As the firm studies the circumstances, it considers the timing so that an initial public offering (IPO) or follow-on public offering (FPO) is successful.
Other key items include:
- Structuring securities
- Marketing the investment
- Distributing securities
- Ensuring regulatory compliance
Even after the offering is over, top advisors provide after-market support. Clearly, the assistance of a good investment banker is invaluable for owners who want to raise capital.
How Private Equity Firms Operate
Selling your business or a controlling interest to a private equity firm can be most efficient and highly profitable. This is because of the experience and resources such companies have. Understanding their approach, goals, and motivations helps you and your advisors work out a deal that is mutually beneficial.
How They Invest
Private equity often involves investments in mature companies that are not on the public exchanges. However, they sometimes purchase public companies and take them private. These firms look for companies with considerable profit potential with the goal of getting a better return than what public equity markets offer.
Focus on Long-Term Growth
Private equity firms typically aim to acquire a controlling interest in companies. Then, they can implement various strategies to enhance a business’s value. The ultimate goal is to sell the company at a profit after several years.
They use a variety of techniques to boost a business’s worth, such as:
- Financial restructuring: A PE firm can be in a better position to reduce debt, refinance, or renegotiate terms to boost a business’s stability and market value.
- Operational improvements: PE firms have the resources for tech upgrades and changes that streamline operations for greater efficiency.
- Additional mergers and acquisitions: One acquisition may lead to another, creating an even stronger company with a larger market share.
- Strategic management: The new owners have extensive connections and a high profile that can attract experienced executives and managers who advance the company.
Since an M&A can still leave the original owner with some shares or stake in the company, selling to a PE firm can present the seller with long-term gains, too. That’s just another way private equity and investment banking can complement each other.
Use of Leveraged Buyouts
Leveraged buyouts (LBOs) are a common strategy in private equity. With so much capital and resources, PE firms have an easier time financing a business purchase with debt. Plus, the purchased business’s assets and operations can serve as collateral.
What this means for you as a business owner is that you’re not stuck negotiating with buyers with limited resources who are fighting for the cheapest deal. Granted, the PE firm’s negotiators will push for the best bargain they can get. However, with M&A advisory services from Axia Advisors in your corner, you can present solid reasoning for what kind of offer you’ll accept and angle for a deal that buyers won’t want to miss out on.
Rely on Axia Advisors Investment Banking for Steady Guidance Through
Experienced investment bankers can remove confusion and worry from the M&A process. Axia Advisors is an M&A advisory firm with unique expertise, especially for companies in construction, home services, and blue-collar fields that are ready to sell.
Why can you trust us? We’ve done it ourselves by successfully exiting our own multimillion-dollar company to a private equity firm.
Schedule a consultation with us today to see how we can help you navigate negotiations involving private equity and investment banking for M&A.
Sources:
https://corporatefinanceinstitute.com/resources/career/investment-banker-in-sell-side-ma
https://www.investopedia.com/articles/financial-careers/09/private-equity.asp https://firstpagesage.com/business/selling-a-business-to-private-equity-pros-cons/
