In the process of choosing an M&A advisor to manage the sale of your business, you will undoubtedly have a discussion about valuation and price expectations. During such discussions, some advisors will lead you to believe they will secure a higher price than others. How much should you weigh such differences in your decision to pick your advisor?
It is enticing to go with the advisor that asserts your business should realize a price in the $17 million to $20 million range (advisors typically speak of indicative ranges) versus the one that suggests $15 million to $18 million. How do you judge which one has a better handle on the market? Recent EOI/LOI’s from buyers in your sector would be nice but they are confidential, and your business is undoubtedly different in some significant way from the target companies. You could examine the comp tables that typically accompany such discussions and the rational for any adjustments, but again, your business is unique.
While recent transactions and comparable trading analysis will indicate a certain price range has been achieved by similar companies in your sector, the way for you to realize the highest price for your business is for your advisor to spend the proper amount of time running a diligent and thorough process involving qualified buyers.
There are five things you should know about your M&A advisor to ensure you will get the time and attention you deserve.
Mandate Fit: If your business is worth $30 million and the advisor typically manages $100 million transactions, then you are probably not going to get a lot of the team lead’s attention (especially when (s)he lands the $100 million deal a month later). It is comforting to have a big name representing your company but if the mandate is not a priority for the firm then you will not be well served.
Time Availability: Does your advisor have too many balls in the air? If your advisor has four or more deals on the go then there will be a lot of competition for his/her time and, again, you will not get the attention you deserve. You want someone who has the capacity and resources to serve your needs; the advisor’s time is finite.
Deal Team: Ensure that the pitch team is the deal team and you don’t suffer the bait and switch. Some firms will have full time “rain makers” pitching prospects and other managers running the deals. Make sure that you are meeting with the deal team lead and that you will get all of his/her time and attention. The advisor deal team should include a senior lead such as a Senior Vice President or Managing Director with substantial negotiation experience plus at least one Associate and/or Analyst as support for research and follow-up.
Team Fit and Character: The advisor-seller relationship is a two way street. The seller must place substantial trust in the advisor. The M&A process is time consuming and can be highly emotional. Over the 6 to 9 month process there will be some stressful moments and deal fatigue may set in. A good advisor will keep you informed and with regular updates and discuss his or her strategy on an ongoing basis.
Compensation: Finally, how a banker is compensated should be considered. Most payment structures involve a small monthly work/commitment fee and the lion’s share is paid by way of a success fee. This works well because the advisor gets paid when a transaction is successfully closed.
While it is attractive to go with the M&A advisor that presents the highest indicative value range (because they somehow seem more enthusiastic about your business, more motivated to get you the best price), you will be well served to also understand your advisor’s typical mandate size, his/her workload, the team on the project and how they are compensated.
Selling your business is a once-in-a-lifetime event. If it is mishandled, serious value is lost. You need an experienced team that acts with integrity, discretion and confidentiality and fully appreciates that a lifetime’s reputation is at stake.