Five Times an Entrepreneur Could Really Use a Good Investment Banker

By Stephen R. Rusch
Gray Strategic Partners, LLC

Entrepreneurs generally come to a point in their business journey where they find themselves in need of professional financial guidance. Investment bankers raise capital, execute mergers and acquisitions, and navigate complex financial transactions. Often, this includes the refinancing of existing debt, raising capital for business expansion, buying a business, buying out a partner or selling the business.  Entrepreneurs are experts in their businesses and not necessarily in financial transactions. Which is why advisors can be helpful in these circumstances.

1.Refinancing of Existing Debt

Most entrepreneurs use debt at some point to finance their businesses.  It is also common that at some point they outgrow their lenders or simply need more flexible debt with better terms, or perhaps to remove a personal guarantee.  In some markets, this can be a simple process.  The rapid rise of interest rates, more conservative banks (and recent bank failures), as well as a shift into non-bank lenders has complicated these transactions.  An advisor could assist in navigating this process.

2. Business Growth and Expansion

Entrepreneurs in growth businesses tend to need growth capital at some point.  Growth capital can potentially take the form of debt, equity or some combination thereof.  There is a large pool of private equity in the United States that makes direct investments into businesses. Often, private equity investors want to “leverage” their investments with debt.

There are also “strategic” equity investors which generally consist of corporations that seek to make investments in businesses they believe may enhance their core business in some sense.  There is also an emerging product known as “dequity,” which shares a combination of both debt and equity features.  An advisor generally has networks of contacts and relationships with these capital providers, can distinguish a proposal that is consistent with the market, and negotiate the best terms.

3. “Buy-Side” Mergers and Acquisitions

“Buy-side” simply refers to a transaction where the entrepreneur is buying another company. An advisor can assist in any dialogue with a seller, analyze the business from a financial perspective, formulate an offer, manage the due diligence process and negotiate the terms of any purchase agreement.  The purchase may require some form of financing discussed above.  Moving through this process often requires specialized knowledge and experience.

4. Buying Out a Partner

Business owners often have partners: family, friends, silent investors, or older partners coming close to retirement. This is extraordinarily common.  It is not exactly the same as a “buy-side” M&A project, as all parties know the business.  Of course, it has the added complication that there may be friendships or family associated with the transaction and must be handled with more delicacy.  The transaction may or may not require outside capital and there may or may not be an up-to-date shareholders agreement that includes exit provisions for any shareholders.  These are situations that an experienced advisor can be invaluable.

5. “Sell-Side” Mergers & Acquisitions

Business owners may at some point elect to sell their business for any number of reasons: retirement, restructuring or financial pressure, fatigue, health or diversification, for example.  Others have simply “had it” and are ready to move on.  Often, a sale exploration may be related to an inbound inquiry from a strategic buyer or private equity investor seeking control. 

Typically, an advisor can assist in preparing marketing materials to show to buyers, manage a due diligence process and negotiate the price and terms of the transaction. This has been discussed at length in another Gray Strategic Partners article.  In some cases, a business owner may have a business in financial trouble and needs assistance in a debt or other restructuring. An advisor can assist to evaluate options, negotiate with creditors, recapitalize, or sell the business.

Investment bankers work across a variety of transaction types and business owners do not know exactly what they may want to do in any given situation.  A refinancing can turn into a sale, for example, or a sale effort may end in a merger.  Once an owner makes contact with the market, objectives may change, and there are many possible outcomes.  Working with an experienced advisor along the way may be invaluable.