I wish there were a more straightforward way to answer this other than through the "it all depends" lens, but, really: it all depends. On one end of the spectrum, if you're talking about selling a very small private business, such as, for example, a one-store bookshop, then it's really not necessary to hire an investment bank. On the other end of that spectrum, if you're taking a large growing business public, or looking to effect a complex M&A deal, then hiring an investment bank could very well be said to be essential. There are countless iterations of business deals, so it's best if you post some context around your question.

If you are contemplating raising any significant amount of money you need someone to help you to structure and price your offering. Since the JOBS Act the raise itself is not difficult nor as expensive as it used to be, but you still have to offer investors a deal that is good for them and yourself.

Likewise, "it depends" - if you're experienced in deals... go for it. If you believe in the value of having a professional on your team (whether mechanic, dentist, cardiologist or Investment Banker...) then include a banker. Most of the time, they "pay for themselves".

As a team of CFOs, we, of course, believe strongly in the need for a qualified CFO to be part of the team as well, in many instances, long before its time to bring in the Bankers.

CFOSystemsLLC.com

Why is it necessary (or advisable) to hire an investment banker?

1. To advise Board as to value of a potential transactions such as:
   1. Mergers & Acquisitions (accretive or not to existing value?)
      1. Target identification
      2. Roll up strategies
   2. IPO
      1. Pricing,
      2. Marketing,
      3. Book running,
      4. SEC filings review,
      5. Market comps,
      6. Post IPO market management,
      7. Analyst following, etc)
   3. Capital / Financings:
      1. Equity offerings
      2. Debt offerings ...especially publicly traded debt
      3. Project financing
2. Dividend policy / Stock buybacks (share price impacts verses capital needs)
3. Hostile takeover defense alternatives if share price is undervalued.
4. Independent fairness opinion for offers for your company or acquiring other companies.
5. Major business decisions advice and impact on value such as:
   1. New plant expansion
   2. Product or services diversification
   3. Industry disruption
   4. International market entry
   5. Senior management turnover / compensation, etc. (employee stock option / grant valuation compared to peers and market expectations)
   6. Generational succession planning
6. Corporate restructuring:
   1. Sales of business units (Dataroom management, negotiating, due diligence on buyer, etc.)
   2. Debt restructuring (convert debt to equity, etc.)
   3. Chapter 11 debt restructuring
7. Risk management strategies
   1. Interest rate, commodities, currency hedging
      1. Contractual / natural

I was an investment banker for over a dozen years. The reason clients came to us for either fundraising or M&A had primarily to do with: (1) opportunity cost of time was too high for them to do by themselves; (2) our knowledge of the market dynamics and rolodex of relationships made the process very seamless for them; (3) investment banking transaction was once in a lifetime opportunity for them to shine, so they didn't mind it being handled by professionals for absolutely best outcome, without worrying too much about small transaction fee; and (4) certain transactions get too complex with regulatory requirements that simply couldn't be handled by them. Hope this helps!

WHY IBs

When a corporation needs to raise capital for growth or expansion, there are two methods. Raising debt or equity.

If equity is used, the corporation can market securities directly to the public by contacting its current stockholders and asking them to purchase the new securities in a rights offering, by advertising or by hiring salespeople. Although this last example is somewhat exaggerated, it illustrates that there is a cost to selling new securities, which may be considerable if the firm itself undertakes the task.

For this reason, most corporations employ help in marketing new securities by using the services of investment bankers who sell new securities to the general public. Although the investment banking is an exciting and vital industry, many SEC rules regulating it are not. Nevertheless, it is important to understand basic concepts of the industry if raising public money is ever a possibility or anticipated goal.

It is also important to understand something about securities underwriting to reduce the likelihood of fraudulent investment schemes or ill-conceived transactions which ultimately result in monetary loss.

Many thanks.

How about a "Dutch Auction" Instead of IBs?

A Dutch Auction can be used in an Initial Public Offering (IPO). An Initial Public Offering (IPO) is the first sale of stocks issued by a company to the public.

Prior to an IPO, a company is considered a private company, usually with a small number of investors (founders, friends, families, and business investors such as venture capitalists or angel investors).

A Dutch auction is a price discovery process in which the auctioneer starts with the highest asking price and lowers it until it reaches a price level where the bids received will cover the entire offer quantity.

Alternatively, a Dutch auction is known as a descending price auction or a uniform price auction. Dutch auctions are appropriate for instances where a large quantity of an item [stock shares] is being offered for sale, as opposed to just a single item.

Any thoughts?