What Investment Bankers Actually Do When Selling a Business

“So, what do you say you do here?” This iconic line from Office Space might feel eerily familiar if you're not entirely sure what investment bankers bring to the table when selling a business. For many, the role of an investment banker seems like a shrouded mystery—but their work is vital to ensuring a successful, profitable transaction (but I'm a bit biased given this is my profession).

Let’s break it down and share what investment bankers actually do when valuing or representing a business for sale, the timelines involved, how they are compensated, and who they work with along the way.

The Process of Valuation

At the heart of any business sale is determining what the business is worth—and no, it’s not as simple as just checking last year’s financials and assigning a random multiple you heard your buddy sold their business for.

Here are the core steps investment bankers undertake when performing a valuation:

1. Financial Analysis. Investment bankers dig deep into the company’s financials, analyzing past performance and projecting future growth. They look at metrics like EBITDA (earnings before interest, taxes, depreciation, and amortization) to measure profitability and cash flow.
2. Market Research. Bankers assess the broader industry to understand trends, growth opportunities, and competitive dynamics. They also scrutinize how the business compares to rivals, providing valuable perspective on its market leverage.
3. Comparable Company Analysis (Comps). Bankers compare the business to similar companies in the market—those recently sold or publicly traded—to identify valuation multiples like price-to-earnings or enterprise value-to-EBITDA ratios.
4. Precedent Transactions. Another method is reviewing similar deals in the same industry. This provides insight on past deal structures and pricing benchmarks.
5. Discounted Cash Flow (DCF) Analysis. A more advanced technique involves projecting the company’s future cash flows and discounting them to their present value. While meticulous, this method serves as a complement to simpler approaches like comps.

The result? A range of values that frames the groundwork for negotiation—but it's only the beginning.

The Role in Selling a Business

This is the phase that answers the “Office Space” question—this is what they do (most critically, anyways):

1. Preparation Phase (4-6 Weeks). Some folks can do this quicker, but this involves the valuation, strategy, crafting the story, creating the Confidential Information Memorandum (CIM), and other marketing documents.
2. Marketing the Business (8-12 Weeks). Bankers confidentially reach out to buyer targets, managing interest without disrupting operations. This leads to Indications of Interest (IOIs), which outline the buyer’s valuation ranges and deal terms.
3. Due Diligence and Negotiation Phase (8-12 Weeks).
4. Closing the Deal (3-4 Weeks). With diligence done and terms nailed down, lawyers finalize the contracts. It all ends with signatures and transferring funds (cue celebratory dinners!).

Total Timeline for a Business Sale

From start to finish, the process ranges 6 to 12 months. Every deal varies depending on complexity, industry conditions, and market dynamics. Again, some folks can expedite the timeline but I recommend planning for up to a year since a hiccup or two usually presents itself along the way.

Compensation Structure

If you’ve wondered, “How do bankers get paid for all this?” here’s the breakdown:

• Retainer Fees. Also called engagement fees, these upfront payments secure the banker’s resources. The amount will vary based on the group, the complexity of the transaction, the size, etc. but can range from a monthly retainer at $7,500 to a singular upfront investment of $25,000 up to $200,000.
• Success Fees This is where investment bankers really earn their keep. These fees are calculated as a percentage of the final sale price, typically 1% to 3% for mid-market deals, or greater for lower middle-market or smaller transactions (up to 10%).

The goal of this structure is to align interests; everyone wins when the deal closes.

Key Team Players

Selling a business isn’t a solo venture. Here are a few more members on the team:

• Accountants for producing quality financial reports and validating performance data.
• Attorneys who handle deal agreements and legal diligence. Please, please, please, work with a M&A trained attorney.
• Third-Party Valuators for appraising specific assets or real estate.
• Industry Consultants to sharpen strategic assumptions.

Do Investment Bankers Matter?

To paraphrase Office Space, investment bankers are the people who “make sure the thing gets done right.” So in my opinion, yes (but again, I'm absolutely biased).

P.S.

This process is not only for our investment banker friends. As discussed yesterday, M&A Advisors and Business Brokers may perform the same process and with the same goal in mind.