When investment banks or merger and acquisition (M&A) advisors pitch for new business, they often try to differentiate themselves based on the firm’s executed transactions in a specific industry, quality relationships with buyers, and the their ability to obtain a high valuation. Buyer beware.
In my 22 years of investment banking experience, what really matters is not the firm, but the quality of the individual(s) who will be leading the transaction, who will interfacing with the client and his team of professionals and who will be communicating with potential buyers on the client’s behalf. Business owners must get past the talk of the “firm” and interview exactly who will be leading the transaction effort and negotiating on the business owner’s behalf.
Here’s the Situation
Business owner decides to sell his business. Obviously, he wants to achieve the best price and terms he can get. But, he has never sold his business before and given the associated uncertainties and risks, he elects to hire a mergers and acquisitions advisor or investment banker to lead the deal. Since he is not familiar with any investment banks or M&A firms (he never needed the services of one till now), he goes about researching who these firms are and decides to approach a small handful to discuss his situation and determine if they are interested in helping him.
A few firms show interest and “pitch” the business owner on who they are, how good they are at selling businesses, how he should hire them to represent his company. They also present their fees, which are meaningful. How does this business owner determine which firm to engage? But wait, the decision gets even tougher. Ultimately, it’s not the firm that will be working on his transaction, it will be a specific M&A advisor and his team who will be leading his deal.
The "Bait and Switch"
From my experience working at large “bulge bracket” Wall Street firms to small M&A boutiques, I have seen it numerous times…the “bait and switch”. What is the “bait and switch”?
The “bait” is when the rainmaker shows up for the pitch. He comes across as knowledgeable, experienced, competent, confident and likeable. His role is to convince the business owner to hire his firm. The “switch” is after the business owner decides to hire the firm, the rainmaker disappears and the actual deal execution team steps in.
Hold on a minute the business owner thinks to himself. I hired the guy who pitched the business. So who is this deal execution team? Who is my point person and main contact during the lengthy sale process? Who do I call when questions or issues arise? Does this team know what they are doing? How can I be sure I will receive their full, focused attention? What if they leave the firm during the middle of our sale process – who will back them up?
Hire the M&A Advisor that "Fits", Not the M&A Firm
In my experience, if a business owner wants to sell his business and achieve the best deal he can, he should hire a M&A advisor. One who is competent, experienced and who presents a good “fit” with the business owner. Hiring the wrong M&A advisor can be disastrous and costly both in terms of time and money wasted. But, before he hires anyone to represent his interests, the business owner must make sure he knows who will be leading the charge on his deal and who he will be working with every step of the way.
Hire the M&A advisor, not the firm.