What you need to consider when choosing an M&A advisor
Selling a business is one of the most important decisions a business owner can make. And finding the right M&A advisory firm is equally important, and a decision that should not be taken lightly. Who you appoint can make the difference between seeing a big rise in value and the deal not going ahead. Selling a business is guaranteed to be complicated, and if things get bumpy, you want to have a steady, experienced professional by your side. Here is an overview of the main qualities you need to consider when choosing an M&A advisor.
Take your time in evaluating potential advisors. Every sale process comes with its share of obstacles and challenges, so you want to ensure you trust whoever is guiding you through the process. You need someone by your side who understands your business, and what you expect to achieve from the sale. Trust is the foundation of relationships, and the relationship with your advisor shouldn’t be any different. Without trust, what is already a complex process can become much more difficult. The right advisor will engage with your objectives right from the start and take the time to truly understand your business, so you can feel completely confident that their interests and vision are aligned with yours. If they aren’t working towards your goals, but rather what they think your goals should be, then they may not be the right advisor for you.
The bottom line is that you should feel that you have a great relationship with your M&A advisor, believe you can trust them and know that they truly have your back. Who you appoint can make a big difference to the sales outcome – not only with respect to the purchase price, but also in terms of how quickly and efficiently the deal is closed.
Understanding the process
Understanding the process and how it’s run is also important. The process takes a lot of discipline, and you don’t want your advisor cutting corners. Great advisors don’t skip steps and are diligent about representing your company well and working hard throughout the entire process.
Get in touch with potential advisors to request a timeline that contains specific milestones and a detailed description of what the advisor will do at each stage of the process. Ideally, the firm you choose will have developed a repeatable model that is both tied to the company’s strategy and customized to its experience with the goal of delivering superior returns.
Also, keep in mind that your best exit strategy may be to wait. You might be surprised to learn that many M&A advisory firms are happy to consult with you on ways to add value to your business, even if you are looking at an exit horizon. These firms know that building a long-term relationship with you now will be beneficial in the future. Because they’ve earned your trust, you will likely feel comfortable hiring them to represent you when you are ready to sell.
When you are ready to choose and M&A advisor, the first thing to look out for is experience. Selling a business is a major life decision and you need an M&A advisor who has a solid track record and a wealth of experience in successfully completing transactions. The M&A advisor you choose to work with is there to create value within a competitive process, and it’s best if the advisor has expertise in your industry. An industry expert will better understand the key drivers of your business, the market dynamics and the potential buyers. Each sector has its own challenges and peculiarities, and you want an advisor who knows how to navigate those that are relevant to your industry. Their experience should also be recent. The M&A market changes quickly, so it’s important to make sure you are working with an expert who is up to speed.
You’ll also want to work with an M&A advisor that is well suited to your company size. Selling a global company is not the same as selling a mid-market company, and the M&A advisor you choose should be able to show a record of success with firms of your size.
Further, client testimonials can provide a good picture of an advisor’s strengths and weaknesses. If you are granted the chance to speak with a former client, ask them about how happy they were with the process, whether the advisor team were passionate and focused or distracted, and if they would work with them again.
One of the biggest benefits that comes from partnering with an M&A advisor is gaining access to their superior knowledge of financial purchasers, overseas acquirors and purchasers outside your own sector – global connections are especially helpful.
M&A advisor services range in size, from boutique firms and mid-market professionals to big investment banks, and you should choose one that has the geographic connections and resources to expand your opportunities far beyond your reach. Ask yourself if they have a large enough network to create a competitive bidding situation. Can they connect you to potential buyers from different industries and geographic regions?
But remember: the biggest company may not necessarily be the right one. Look for a firm that will take the time to get to know you and is able to develop strategies tailored to your needs.
A good M&A advisor will know about industry trends, current market activity, average multiples and other valuation factors so as to be able to provide a ballpark figure for what your company is worth. If that valuation assessment is not in line with internal expectations, feel free to disagree. Just be prepared to justify your number with your own valuation methodologies. Be careful not to enter the conversation with unrealistic expectations about your company’s value, and be sure to listen to how your advisor arrived at their rationale. And lastly, remember that, at the end of the day, your business is only worth as much as someone is willing to pay for it.
The right team
Running a sales process requires a dedicated team of professionals, and chemistry is everything. You need an experienced team that acts with integrity, discretion and confidentiality, and fully appreciates that a lifetime’s reputation is at stake. You are going to be working closely with your advisor through a grueling journey, so you want to feel comfortable knowing that your deal is getting the time and attention it deserves.
You’ll also want to understand what the team looks like – their experience and backgrounds. Look at the talent employed by the advisory firm, and whether they appear to be passionate and enjoy what they do. It may not seem like a big factor, but when the people in your corner are “all in” when it comes to getting you the best deal possible, the outcome is likely to be much more rewarding.
To that end, you should also inquire about the role each team member will play in the transaction process, especially the senior advisors. While these professionals do not need to handle the early stages, such as preparing documents, it’s important that they are involved in the final negotiations, when having an experienced leader really counts.
When choosing an M&A advisor, you may be tempted to choose the one with the lowest fees. But this decision could end up costing you money. Selling your business is a once-in-a-lifetime opportunity, and you don’t want to jeopardize the outcome by cutting corners. Think of this decision as an investment. Instead of choosing the cheapest M&A advisor, choose the one that will provide the biggest returns.
When appointing an M&A advisor, you should pay close attention to how fees are structured. Most firms charge a monthly retainer fee as well as a success fee. Reputable advisors typically link their fees to the success of a sales deal. In other words, what they earn is contingent on successfully helping you achieve your goals. Price is always a consideration, but you should look at this in the context of the service you are being provided and the value being created by the process. A good M&A advisor should be able to add value to the transaction that is worth many times the amount of their fees.
*originally posted on oaklins.com on 9 February 2022