Every sophisticated institution, when selling a company, instinctively leans towards hiring an M&A advisor. Yet, many founder-led and family-owned businesses contemplate a direct sale. While it. With the utmost respect to the decisions of business owners, I’d posit that such choices often stem from misconceptions. What seems like an effort to save costs may actually be an oversight that leaves significant value on the table. As a follow-up to my earlier piece, “Selling Your Business: Unmasking Misconceptions and The Crucial Role of an M&A Advisor“, I’ll delve deeper into the invaluable role of an M&A advisor.
The Realities of Direct Sales
Attempting a direct sale of your business can be likened to a captain leaving the ship’s wheel to mend a deck board. Distractions, particularly at critical junctures, can diminish operational performance and in certain cases be destructive. Moreover, while saving on advisor fees seems attractive initially, it’s essential to weigh it against the potential financial benefits an experienced advisor can bring to the table. For instance, the potential for a higher sale price, often spurred by a competitive bidding process, can easily exceed the savings — by a lot.
Advisors don’t just justify their fees by enhancing the ultimate sales price; they add layers of expertise and value at every stage of the sale. From identifying potential buyers to managing deal process timeline, protecting management from the “noise” and numerous other issues, a seasoned M&A advisor is an invaluable asset.
Benefits of an M&A Advisor
Selling a business is a rigorous process, with countless intricacies that need attention. An M&A advisor ensures you, the business owner, maintain an unwavering focus on the operational front, while they handle the intricacies of the transaction. This doesn’t mean that there will be no distractions from the deal but it means the distractions will be substantially lower than they would be otherwise. The resulting clarity and peace of mind that this produces is significant and can be the difference between hitting or missing your budget.
Creating Competition Amongst Buyers
While you might be familiar with regional competitors and a handful of the big nationals, an adept M&A advisor goes above and beyond. They endeavor to curate a comprehensive buyer list that encompasses a range of potential acquirers: from large multinational strategic buyers to local regional competitors, from private equity firms and family offices to individual entrepreneurs eyeing a venture like yours.
By forming this diverse buyer universe, the advisor seeks to ignite competitive friction within that buyer landscape. This tension, generated from various buyer types vying for your business, frequently culminates in a heightened valuation. It’s noteworthy that just a marginal increase in valuation through this competitive environment can often justify an advisor’s fees many times over.
In essence, while you might recognize some faces in the buyer crowd, the unseen contenders brought in by a skilled advisor might just be the key to elevating your sale price.
Validity of Sale Price
Whether it’s family members, minority shareholders, or other stakeholders there are many eyes watching the sale of a business. An M&A advisor’s involvement brings an assurance of price fairness and market validity, mitigating concerns and potential future disputes.
Market Insight and Negotiation Prowess
Beyond just figures, advisors bring with them a treasure trove of past interactions, understanding buyer behavior, market trends, and negotiation strategies. They discern when to push and when to hold back—maximizing the opportunity for favorable outcomes.
Complex Deal Structures and Terms
Deals aren’t just about price; they encompass terms, conditions, and clauses that have meaningful future implications. Your transaction advisor acts in concert with your attorney to ensure you’re not just getting the best price, but also the best terms. In other words, they help you achieve maximal upside with limited downside risk.
It’s the unseen icebergs that sink ships. In the world of M&A, there are issues that can kill your deal. Great M&A advisors identify these latent risks—be it potential liabilities, operational issues or unforeseen contractual implications—ensuring smoother navigation to a closing. Since your advisor identified the risk early, you can remedy the situation or at least have a plan prepared to address any questions or issues that might arise. By doing this you minimize the “deal risk” that this specific issue creates.
Even with the best accounting and law firms on board, critical transactional voids remain and will emerge all the way until you close. For example, imagine a buyer requesting a financial schedule from a Seller and the Seller’s finance team or external accounting team is stuck. Bankers have the experience and analytical talent to work with all parties to help get the situation resolved. M&A advisors ensure a seamless transaction process and bridging gaps is a key part of their role. Sometimes that means the M&A advisory team will spend time executing the necessary task and other times that means M&A advisor will work with the sellers team to prepare them to meet the needs of the Buyer.
The Communication Layer’s Significance
- Filtering Out Noise: Advisors serve as the gatekeepers, ensuring only relevant communications reach the business owner. This approach safeguards owners from unnecessary distractions, ensuring their day to day focus on operations .
- Refining and Optimizing Communication: In business sales, communication isn’t just about relaying information—it’s about presenting it optimally. Advisors ensure that all presentations, documents, dialogues are “deal-ready.” This prevents misunderstandings or premature revelations.
- Risk Mitigation in Communications: In the tumultuous journey of a business sale, emotions can run high. Direct communications between buyers and sellers, especially during tense moments, risk jeopardizing the entire transaction. Having an intermediary ensures a modicum of stability and consistency.
Contrasting with Other Professionals
While M&A attorneys provide critical legal insights and accountants offer valuable financial perspectives, an M&A advisor’s role is unique. Depending on the industry and context, even seasoned professionals might lack a comprehensive grasp in certain areas. Hiring an M&A advisor improves the likelihood that no stone is left unturned, no opportunity is missed, and no risk is overlooked.
Remember, it’s not about the expense of hiring an M&A advisor but about the value they bring. The added layer of expertise, the intricate understanding of the process, and the tailored guidance are unmatched. Entrust them with the sale, and you’ll realize that the decision, far from costing you, enriches you.
Caution: Are You Prepared to Face the Buyer’s “A-Team”
Here’s a reality often overlooked: on the other side of the table, buyers usually have a seasoned M&A expert, or more often an entire M&A team (ie Corporate Development). This individual or perhaps team of individuals, each with perhaps 10 to 20 years of experience, is a master at negotiations and financial analyses. As a business owner, you don’t want to enter this arena unprepared. It’s not about trying to outwit or outplay, but about ensuring you’re on a level field. Why challenge yourself unnecessarily? Equip yourself with the right tools and support to win. Ensure that you not only feel confident at every turn but truly hold the upper hand.
Transform your outcome with Astria
If you’re contemplating selling your business, don’t do it alone. Astria’s dedicated team of experts ensures that you’re not just prepared, but you’re ahead at every stage. With a history of successful transactions and satisfied clients, we are your trusted partner in the M&A journey. Reach out today and ensure you’re well equipped before you set sail.
Remember that a transaction advisor acts as the lighthouse guiding your M&A voyage. With their assistance, you’re not just safeguarding your journey but ensuring you arrive at the best possible destination. Recognize the value and dedication you’ve invested in your business by ensuring it culminates with the right people by your side. With an M&A advisor, not only do you level the playing field against the buyer’s M&A experts, but you tip the scales in your favor. The decision isn’t about costs; it’s about maximizing the value of your legacy.