Engaging A M&A Advisor Enhances the Probability of Getting a Deal Closed & Achieving the Maximum Price
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.
11 Reasons to Hire an Experienced M&A Advisor (continued from "Why Business Owners Hire a M&A Advisor Part I")
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. This article continues with the remaining six reasons to hire an experienced M&A advisor. See Part I for the first five reasons.
6. M&A Advisors Help Prepare the Business for Sale.
To successfully sell a business, pre-sale preparation is critical. It results in three key benefits. First, preparation eliminates negative surprises to the buyer. Negative surprises kill deals. A M&A advisor will help the business owner identify any possible issues or risks and figure out ways to mitigate these risks before marketing the business to prospective buyers.
Second, preparation allows the M&A advisor to determine how best to position the company to buyers in order to have the most appeal.
Third, preparation relates to credibility with buyers (first point). Buyers quickly determine if a seller is prepared (or not) to consummate a transaction if a deal is struck. From a buyer’s perspective, prepared sellers demonstrate a genuine willingness and readiness to reach a deal, and once reached, an ability to close the transaction.
7. M&A Advisors Source a Wide Range of Buyers.
To create robust bidding for the client’s business, the M&A advisor typically compiles a prospective buyer list containing 100-300 possible buyers, many of which are unknown to the business owner. M&A Advisors provide the leg-work to identify prospective buyers, perform buyer research and help business owners uncover and understand the logical buyer groups.
After completing the buyer list, the M&A Advisor contacts all the parties and introduces the opportunity. This effort is part marketing and part sales with a heavy dose of tenaciousness to make sure the appropriate person within the prospective buyer organization reviews the deal. Experience, industry expertise and relationships play a large role in a M&A advisor’s ability to build a logical and diverse list of qualified buyers while getting these prospective buyers to take interest in the deal.
8. M&A Advisors Manage the Due Diligence Process.
Once a buyer and seller have reached an agreement on a deal, the buyer’s due diligence team (composed of accounting, tax, legal, environmental, insurance, lending and other consultants) gets busy. They request virtually every type of document, report, data and information you can think of. Due diligence is time consuming and requires much back and forth communication. Maintaining confidentiality is critical. M&A Advisors manage the entire due diligence process ensuring that the buyer’s team receives the requested information, often adding explanations and analysis, while also acting as a buffer for the client.
9. M&A Advisors Act as Client Advocates During Negotiations.
During transaction negotiations, M&A advisors play multiple critical roles. They act as advocate on behalf of their client to aggressively negotiate to obtain the best deal possible. They act as the central point for information flow and communications between client and buyer and ensure lines are open and messages are consistent and constructive. They act as problem solver figuring out ways to overcome difficult issues or deal hurdles. They can play “bad cop” as necessary and run interference on behalf of the client so he can maintain a healthy relationship and goodwill with the buyer as the process unfolds.
10. M&A Advisors Advise on the Optimal Transaction Structure.
What are implications of the transaction structured as an asset vs. stock deal? What portion of the deal should be cash vs. contingent consideration, such as earnout, seller debt? Should the client rollover a portion of his equity into the buyer’s entity? If so, how much? Should the client accept buyer stock? If so, how much and what are the protections? What is the role of the seller post-closing and what is his compensation? How is the non-compete structured? These questions give a small taste of the myriad items that must be analyzed and decided upon. Experienced M&A advisors help clients evaluate these and come to an optimal structure.
11. M&A Advisors Maintain Transaction Momentum.
The top three reasons deals die: (1) company performance declines, (2) during due diligence buyers uncover a negative surprise or risk, which cannot be mitigated or negotiated around and (3) time slips and momentum wanes. There is a natural flow associated with a transaction. As the company sale process moves forward, momentum builds. Maintaining this momentum and urgency through closing is critical. Often, hurdles arise during the negotiations, which slow the process. These hurdles must be overcome as quickly as possible to keep momentum and the deal on track. Once momentum is lost, it is very difficult to re-start. M&A advisors play a crucial role in driving and pushing the deal along in order to maintain transaction momentum.
Why Business Owners Hire a M&A Advisor
So why does an owner hire a M&A advisor to sell his business? Experienced sellers of businesses consistently answer the question...the use of a M&A advisor to facilitate a transaction helps get the deal closed and drives demonstrable increases in value.