What Your Banker Won't Tell You Before Going to Market

Sell-side bankers are good at running processes. They know how to build a CIM, run a buyer outreach list, manage an IOI round, and negotiate an LOI. What they are less consistent about is telling founders the hard things before the process starts -- the things that, if addressed early, would produce a materially better outcome.

The incentive structure that shapes what bankers tell you

A sell-side banker in the lower middle market is typically paid a success fee at close -- a percentage of total transaction value with a minimum retainer. That structure creates a specific incentive: the banker is paid when the deal closes, not when you are maximally prepared. A delay to address readiness issues means delayed revenue. A launch that surfaces problems in diligence is painful, but the banker still has a chance to recover the deal.

This is not an accusation of bad faith. It is an economic reality. The banker's incentive is to launch quickly and manage whatever comes up. The seller's incentive is to be fully prepared before the first buyer conversation. Those incentives do not always point in the same direction.

What bankers know about your management package that they don't say

The management package -- your CFO, COO, and any other key operational leaders who will present to and work with the buyer post-close -- is one of the most important valuation variables in a process. PE buyers in particular are buying a team as much as they are buying a business. A thin or founder-dependent management team directly reduces the price a PE buyer will pay.

Bankers know this. They see management packages across hundreds of transactions. They have a clear sense of what a strong versus weak management team looks like relative to a business of your size and complexity. They rarely tell founders the hard version of their assessment before launch.

What buyers say about your business that you never hear

After IOI meetings and buyer conversations, bankers report back to sellers. Those reports are filtered. The banker's job is to maintain seller confidence and keep the process moving. The result is that sellers often hear a curated version of what buyers actually said.

Buyers are candid in IOI conversations about their concerns: customer concentration, management depth, EBITDA quality, capex intensity, technology infrastructure. Those concerns inform their valuation. Sellers who understand what buyers are actually saying -- not the filtered version -- can address concerns proactively rather than absorbing them in the LOI round.

What actually kills deals in diligence

The causes of deal failure in diligence are remarkably consistent and largely predictable. EBITDA adjustments that eliminate or significantly reduce claimed addbacks. Owner dependency that cannot be resolved within a reasonable post-close transition period. Customer concentration that the lender prices through reduced leverage, which forces a price reduction. Working capital methodology disputes at close.

Every one of these causes is visible before the process starts. Pre-market readiness work -- a quality-of-earnings review, a management package assessment, a customer contract audit, a working capital analysis -- identifies them before the buyer does. The banker who tells you to skip this work to launch faster is telling you something true about their incentives and false about your best interest.