What is the difference between a business broker and an M&A Advisor? The main difference is in the size of transactions they work on. Business brokers deal with smaller businesses, retailers, restaurants, franchisees while the term M&A Advisor is more associated with investment banking firms who work on more complex and larger transactions.
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 we would like to outline exactly what an advisor does in the process of a sale mandate. At this point we are 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.
What Does an M&A Advisor Do?
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/strategic 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.