Tag Archives: Agent

What Exactly Does an M&A Advisor Do?

In “How Does an M&A Advisor Add Value to the Divesture Process?”, I noted that M&A advisors typically charge between 3% and 7% as a success fee for managing the sale process for a company.  The question I addressed then was, will engaging an M&A advisor improve your expected sale value by at least 5%?

Here I would like to outline exactly what an advisor does in the process of a sale mandate.  At this point I am assuming that pre-mandate matters such as preparing a business for sale, value expectations and timing from a business and market perspective have been discussed and it is agreed that it makes sense to proceed.

The advisor side of the deal team typically includes a senior lead such as a Managing Director or Senior Vice President plus at least one Associate and/or Analyst as support.  In addition, there are usually international resources involved through foreign offices or foreign partnerships.  Depending on the language and culture of the region, these partners can do as little as buyer introductions to as much as negotiating and structuring deal terms.

An M&A advisor will: (i) position the selling company as a strategic fit for target buyers; (ii) present the opportunity to numerous logical and capable buyers; and (iii) manage the process along a defined and orderly timeline, in order to generate the highest premium possible.  We typically identify what we are responsible for in our engagement letters as follows:

– Conduct a review of the company in order to better understand the nature of its operations and value proposition to prospective partners including:

  • a review and analysis of the historical and prospective financial results of the company;
  • a review and analysis of operational, marketing, technical and other information regarding the factors that influence the cash flow prospects and risk dynamics of the company;
  • discussions with management regarding the operations of the company;
  • a review and analysis of public information and other available information pertaining to the company and the industry in which it competes, and
  • a review and analysis of transactions that have taken place in recent years among businesses whose operations are similar to those of the company.

– Prepare company overview materials in consultation with the company, which will provide prospective partners with an understanding of the nature of the company and allow them to assess value;

– Conduct a search to identify suitable potential partners, guided by any criteria provided by the company;

– Contact and screen potential partners;

– Assist the company in the preparation of due diligence documentation, a management presentation and related materials for review by possible partners;

– Negotiate with possible partners;

– Work with the company’s legal counsel, tax advisors and other advisors to assist the company in structuring the transaction so as to meet its financial objectives;

– Review the documentation in respect of the transaction; and

– Other functions as required in support of the transaction, and as agreed to from time to time.

The whole process may take six to eight months and the M&A team will spend somewhere between 400 and 700 hours on a file.  M&A advisors will have a lot of familiarity with legal documents and tax issues, but ultimately lawyers and accountants are required in the areas of due diligence, purchase and sale contracts, and tax planning.

M&A advisors often highlight how competitive bidding between several eager buyers resulted in an extraordinary price for their clients but, like the over-night success story ten years in the making, a completed divestiture relies on a foundation of thorough planning and process.

How Does an M&A Advisor Add Value to the Divesture Process: the Intangibles

In this post I want to comment on the non-price issues that could arise and how an M&A advisor can keep the process running smoothly and ensure the post sale relationships are started on the right foot.

The following are three areas where an advisor improves the chances of a successful transaction:

  • Allows the business owner to concentrate on running the business

I noted in “How Do I Attract a High Multiple for My Business: The Sale Process” that the selling process is one that takes seven to ten months to complete and that performing below expectations during this time could lead to serious delays and potential difficult renegotiation.  Creating the offering materials and contacting/informing suitable buyers alone is a full time job for the first several months.  Working with an advisor allows the principals and management to stay focused on the business and its performance throughout the process – the process can be long and distracting but the business should remain priority one.

  • Shows serious intent to complete a reasonable transaction

Retaining an advisor demonstrates serious intent of the vendor, ensures objective expectations have been set during the planning phase and makes buyers aware that they will be participating in a competitive and professional process; something which can be leveraged during negotiations.   The sale process is often an emotional one and having an objective advisor can provide independent advise and direction which otherwise might not be possible.

  • Creates a buffer during negotiations to ensure positive post-transaction relationships

Another role advisors play is wearing the ‘black hat’ during the process.  Not only during potentially heated negotiations, but any time the process looks to be stalling, the advisor can shoulder the blame in order to put the process back on track.  Keeping the principals one step removed during difficult negotiations allows them to maintain a positive business relationship as they work through a transition with the new owners.

The experience of having closed many transactions provides the benefit of a portfolio of workable alternatives available during negotiations and deep knowledge of structural pitfalls (for example, tying an earn-out to the lower end of an income statement) and last but not least, a network of strong deal-friendly lawyers and accountants.