By Karl Edmunds – Director, SDR Ventures
For many business owners, the decision point to sell is often one of the single most important moments in the history of the business. Why? Because a successful sale for most lower-middle market companies is the ultimate financial reward for years of hard work. It is harvest time.
One of the key challenges is finding the right M&A advisor. How hard can that be? Many owners assume that an interview with 3-4 investment banking firms, a check on some references and BAM, a clear winner will be discovered. This flawed assumption will disappoint more often than yield the desired result.
So let’s assume that your two top picks have been in business the same length of time and one firm is only slightly lower in price than the other. Now what?
In this article we will examine other key factors to consider in the M&A advisor selection process.
- Examine the Target Market of the M&A What does this mean? Simply be clear that your firm’s industry and go-to-market strategies are a fit for the M&A advisor that you are considering. For example, you may find personal appeal with a firm that has multiple offices, broad market coverage and a competitive price point, but if your business or industry does not align with the direct experience of the M&A advisor’s team, especially the senior investment banker leading the deal process, then you must question whether that firm can persuasively gather the needed information and talking points to present your business in a compelling fashion.
- Align Deal Size with M&A Advisor Capabilities: Always seek out an M&A advisor whose direct experience is clearly centered with deals aligned with your price point. An M&A advisor who attempts to engage to sell a firm that is too large is likely to lack the staff, skills and resources to effectively execute all dimensions of the deal process. Likewise, when a large, highly visible firm “steps down” to serve a smaller firm during a lull in market activity, it can easily become distracted if a “sweeter” deal comes along during the process. And where do you think the top line staff will be headed if that occurs? You are right, you might well get the second team. Then what happens?
Too often the owner and key employees get dragged into the process just to get the job done due to inattention by the M&A advisor team that may be distracted by a larger transaction or lacks needed experience in the nuances of the deal. And when (if at all) the deal is closed, you may be perturbed about the fees paid for the work done.
- Evaluate Critical Intangible Factors: Let’s now assume that the deal size and industry are a fit. Beyond these critical elements, be sure that the M&A advisor you select fully understands your specific competitive market position and geographic coverage, be certain that they know how you go to market and reach your end user customers, and that they grasp your brand status with your customers within your key markets. You should also be sure that the prospective M&A advisor understands your operational platforms, how, and by whom, your accounting and financials are prepared and the commitment and timing you have for completion of the transaction. When all these elements are carefully considered and factored into the overall deal flow process, the probabilities of success turn in your favor.
- Understand that Deal Process is Often More Important than Price Charged for Services: The process for some M&A advisors is to simply advertise the deal as confidentially as possible, rapidly find a buyer and then try to convince you, the owner of the business, that they have found the ultimate and only buyer out there – and that the price offered is the TRUE market value. Unfortunately, this approach is sometimes motivated by the needs and interests of the M&A advisor rather than the long-term needs and objectives of you, the seller.
During the selection process for a suitable M&A advisor, ask the prospective M&A advisory firm to describe its process for the sale of your business. Listen carefully and take notes.
Here are some of the key characteristics of a high quality business sale process…
- The M&A advisor team is comprised of proven, experienced professionals with a strong and capable support staff in all technical areas required to complete the process;
- The market related to the business is clearly defined and the senior investment banker leading the engagement has direct experience within the industry;
- Operations, financials, quality of earnings and due diligence are completed and understood before the in-market process commences;
- High quality and high value marketing presentation and support materials are prepared to accurately portray real value to prospective buyers and to help preempt questions and concerns;
- Prospective purchaser candidates are identified for both strategic and/or investment motivations, and vetted with the owner seller;
- Coordinated and organized communications are launched to deliver key information, determine the level of interest and address any real objections or questions;
- All submitted deal proposals are assessed for risks to the seller — and pre-tax and after-tax implications and legal issues are evaluated with experienced accounting, tax and attorney deal specialists along with how well the proposed deal aligns with buyer expectations;
- A level of urgency is sustained with realistic schedules and commitment dates;
- Terms and agreements are managed with professionalism and integrity;
- Unexpected surprises are anticipated to the extent reasonably possible, and then discussed and addressed skillfully;
- The closing date is targeted and post-closing activities are defined; and
- Transaction is closed efficiently.
- Verify Licensing and Registration: Finally, and of utmost importance, make sure that your M&A advisor and its personnel are properly registered and licensed as required by any applicable laws, rules and regulations. In many, if not most, cases, your M&A advisor should be registered in good standing as a securities broker dealer and its professional investment banking staff should hold in good standing appropriate securities licenses that are applicable to the scope of work undertaken for you. Securities licensing and registration considerations can be extremely complicated and nuanced. Check to make sure that these important bases are covered properly, because the consequences of using unregistered/unlicensed M&A entities and individuals to help effect the sale of your business can be disastrous.
When the business sale process is executed with professional competence and skill, the probability of achieving the highest potential value for the business is dramatically increased. The highest supportable realized value is reached because the process delivers high quality information about the business, presents the value of the business in the best light and thereby helps convey emotional and intellectual value in the eyes of the buyer.
In simple terms, the right business sale process provided by the right M&A advisor drives confidence and trust among all parties involved and lies at the core of a successful outcome.
Whoever the final buyer is determined to be for a proposed transaction, the vast majority of the time success is achieved by engaging the right team of experts employing a process that consistently validates and furnishes potential buyers with solid fact-based information on every aspect of the firm being sold. This includes operations, technology platforms, customer relationships, cultural facts, market realities, growth trends and a management team to carry the new business forward.
When your years of efforts are ready to be harvested through a planned exit, don’t take a routine or passive approach to screening and selecting your M&A advisor for the transaction. Personal referrals along with careful preparation ahead of advisor screening interviews will give you the questions, information and flags to look for that will ultimately yield the best possible fit and the highest likelihood of a successful outcome.