Engaging A M&A Advisor Enhances the Probability of Getting a Deal Closed & Achieving the Maximum Price
What’s the difference between $33 million and $7.5 million? $25.5 million. Based on an actual former client situation, after marketing his company, we sold his business for $33 million. That was approximately 20 months after he had tried to negotiate a company sale with a buyer on his own for $7.5 million. Although very upsetting at the time, fortunately for him, the $7.5 million deal fell through. If his prior deal had closed, he would have left $25.5 million on the table! A very costly mistake.
Why do I tell this actual story? The cost of not hiring a competent M&A advisor can be quite substantial – calculated in aborted deals and millions lost.
When evaluating the sale of a business, owners sometimes ask “Why do I need to engage a M&A advisor? Based on my 20+ years of providing merger and acquisition advisory services, when boiled down, the two main reasons are…a competent M&A advisor significantly enhances the probability of (1) successfully selling the business (ie. getting a deal closed) and (2) achieving the maximum price.
But, why would a business owner not hire a M&A advisor? Based on my experience, it is the problem of business owners not knowing what they do not know. Many owners simply do not understand enough about the role of M&A advisors to make an informed decision about whether or not to hire one.
11 Reasons to Hire an Experienced M&A Advisor
The purpose of this article is to provide an overview of 11 primary ways an experienced M&A advisor provides value to clients during a company sale. All 11 are inter-related and fall into the two categories described above: (1) closing the deal and (2) maximizing company sale price.
1. M&A Advisors Provide Credibility to the Seller.
Various surveys of business owners who sold their business cite that the most important reason they hired a M&A advisor was to bring credibility to their deal. Hiring a credible M&A advisor attributes credibility to the seller. It indicates to buyers that the business owner is serious about trying to sell his business. And, that if a buyer becomes interested, he will not waste his time in trying to compete for and close a transaction.
This is a big deal when you consider that both strategic and financial buyers review many companies (hundreds) before electing to pursue an acquisition. A credible M&A advisor elevates his client’s deal to the top of the stack and gets it noticed.
2. M&A Advisors Create Competitive Bidding Among Qualified Buyers.
The number one way M&A advisors ensure selling a client’s business for maximum price is to create competitive bidding among a number of qualified buyers – an auction. The competitive dynamic puts pressure on buyers to offer their “best” deal in order to win. Plus, the auction weeds out “tire-kickers”, who waste time. The competitive dynamic allows sellers to maintain leverage to negotiate the highest price and best terms to meet their goals.
3. M&A Advisors Drive the Company Sale Process, Navigating the Transaction Complexities from A to Z.
Selling a business is time-consuming and complex. I have seen estimates that a company sale process can take 1,000-1,500 hours spread over a six to 18 month period. Most business owners do not have that amount of time, availability, staff or resources to devote to a company sale on their own. If a business owner did attempt a company sale on their own, there is the real risk of becoming distracted to a point at which the business suffers. Nothing kills a deal faster than a performance decline.
Additionally, working through the nuances of a transaction is complex, requiring expertise, patience and control of one’s emotions. M&A advisors know how to manage this complex process. Ultimately, hiring a M&A Advisor takes the transaction pressure off the business owner and allows the owner to focus on what he does best - running his business.
4. M&A Advisors Assist in Setting Reasonable Transaction Goals and Expectations.
Before embarking on a company sale process, owners should have a clear set of goals and expectations they hope to achieve. If the goals and expectations are aligned with reality, the chances of a successful company sale increase substantially. If they are mis-aligned with reality, the probability of a successful company sale is nil. M&A advisors can assist owners in understanding what is probable and possible as well as setting realistic expectations for a transaction.
5. M&A Advisors Advise on Market and Industry Trends, Valuations and Prospective Qualified Buyers.
M&A advisors should have a good handle on general market and transaction trends. Industry merger and acquisition specialists can advise on elements specific to the industry, including valuation trends and prospective buyer appetite and financial ability to close a transaction.