How to Select & Work with an Investment Banker for Your Exit
When it's time to sell your company, an investment banker (or M&A advisor) can significantly increase the sale price and manage the complexity of the process. For search fund companies in the $5-30M revenue range, choosing the right advisor and managing the relationship effectively is critical to maximizing your exit outcome.
When to Hire an Investment Banker
- EBITDA above $2M: Below this level, the fees may not justify the cost. Consider a business broker instead.
- Timeline: Engage 6-9 months before your target close date
- Multiple buyers expected: Bankers add the most value when they create competitive tension among multiple bidders
- Complex deal: If the transaction involves rollover equity, earnouts, or complicated structures, professional guidance pays for itself
- You lack M&A experience: Even experienced search fund CEOs benefit from sell-side expertise
Selecting the Right Banker
What to Look For
- Industry expertise: Has the banker closed deals in your industry? They should know the buyers and speak your language.
- Size fit: Choose a firm that regularly handles transactions your size. A bulge-bracket firm won't prioritize a $10M EBITDA deal.
- Buyer relationships: Ask for a preliminary buyer list. A good banker should immediately name 15-20 likely buyers.
- Senior attention: Will the senior banker who pitches you actually run your deal? Get it in writing.
- Track record: Ask for 5 recent comparable transactions with references
Red Flags
- Promising unrealistic valuations to win the engagement
- No industry specialization or relevant deal history
- Bait-and-switch: senior banker pitches, junior team executes
- Pressure to sign an exclusive engagement immediately
Fee Structures
- Success fee: Typically 3-5% of transaction value for deals under $25M; 1-3% for larger deals
- Monthly retainer: $10-25K/month to cover the banker's time during the process (often credited against success fee)
- Minimum fee: Most bankers have a minimum fee ($150-500K) regardless of deal size
- Expense reimbursement: Travel, data room, and marketing materials are typically separate
- Tail provision: The banker earns a fee on any sale to a buyer they introduced, typically for 12-24 months after engagement ends
The Sell-Side Process
- Preparation (4-6 weeks): CIM creation, financial model, data room setup, buyer list
- Marketing (4-6 weeks): Teaser distribution, NDA execution, CIM delivery
- First round (3-4 weeks): Receive IOIs, evaluate and shortlist bidders
- Management presentations (2-3 weeks): Meet with shortlisted buyers
- Final bids (3-4 weeks): Receive LOIs, negotiate terms, select buyer
- Due diligence & closing (6-10 weeks): Buyer due diligence, definitive agreement, close
Key Takeaways
- Hire an investment banker if your EBITDA exceeds $2M and you expect multiple interested buyers
- Choose based on industry expertise, deal size fit, and senior banker commitment, not just the pitch
- Typical fees: 3-5% success fee plus $10-25K monthly retainer for sub-$25M deals
- Engage 6-9 months before your target close for optimal process management
- The entire sell-side process takes 6-9 months from engagement to close
Related Resources
- Preparing Your Company for Exit
- Exit Strategies for Search Fund CEOs
- Secondary Sales to PE Firms
- Strategic vs. Financial Sale
Frequently asked questions
How much does it cost to hire an investment banker for a lower middle market exit?
For transactions in the $5-30M range typical of search fund exits, expect total investment banking fees of 3-5% of the transaction value. Axial’s 2024 fee survey shows the median success fee for sub-$25M deals is 4%, with most banks also charging a monthly retainer of $10-25K (typically credited against the success fee at close). Most bankers have minimum fee floors of $150K-$500K regardless of deal size. Additional costs include data room expenses ($2K-$5K), marketing materials ($5K-$15K), and travel. For a $15M EBITDA business selling at 6x ($90M EV), total banking fees would typically be $2.7M-$4.5M. The higher fees at smaller deal sizes reflect the similar level of work required regardless of transaction value.
When should a search fund CEO start preparing for an exit?
Begin exit preparation 12-18 months before your target exit date, and engage an investment banker 6-9 months before. Stanford GSB’s research on search fund exits found that companies with 12+ months of exit preparation sold at multiples 1.0-1.5x higher than those that initiated sale processes opportunistically. Preparation includes cleaning up financials (2-3 years of audited or reviewed statements), professionalizing operations, reducing customer and key-person concentration, and building the management team so the business operates independently of you. Harvard Business Review recommends building a “sale-ready” business from day one, as the disciplines that make a business attractive to buyers also make it better to operate.
What is the typical timeline for a sell-side M&A process?
A complete sell-side process typically takes 6-9 months from investment banker engagement to close. The phases are: preparation (4-6 weeks for CIM creation, data room setup, and buyer list development), marketing (4-6 weeks for teaser distribution and CIM delivery), first round (3-4 weeks to receive and evaluate IOIs), management presentations (2-3 weeks), final bids and LOI negotiation (3-4 weeks), and buyer due diligence through closing (6-10 weeks). According to Axial’s market data, the median time from engaging a banker to signed LOI is 3-4 months, with an additional 2-3 months for due diligence and closing. Processes involving strategic buyers often move faster than those involving financial sponsors.
Sources
- Harvard Business Review, Selecting and Managing Your Sell-Side Advisor (2024)
- Axial, Investment Banking Fee Survey for Lower Middle-Market Transactions (2024)
- Stanford GSB, Exit Process Management for Search Fund Companies (2024)