How the selection of your M&A advisor can directly impact your exit value

How the selection of your M&A advisor can directly impact your exit value

It’s never an easy decision to sell your business, but once you have made it – next comes the challenge of deciding who sells it for you. Different Merger & Acquisition advisors will have different specialities, tactics and priorities. To make sure you make the right choice for you and your business here are some things to consider.

Deciding to sell your business can be very much like selling your own home – with the same emotions and issues to contend with. Choosing the right partner for your sale can bring a wealth of value to you – on both monetary and softer benefits.

What are your options:

When selling your home or business there are a wide array of selling partners available, but these generally fall in to one of the following groups.

1. The low-cost, high-volume agents

2. Credible agents which will initially invest in a well laid plan but lose focus overtime as they move on to new prospects

3. Specialist agents who give bespoke and personal attention to the sale, considering what action is required to optimise the best value for the owner

Decisions driven by fees:

It is unfortunately one of life’s ironies that when selling anything there is a disproportionate focus by sellers on what fee the agent is receiving from the deal, rather than what the total sale value will be after the agent fee.

It is this very human trait which can similarly cloud the assessment when choosing a M&A advisor of what value your M&A advisor can bring.

Choosing the right M&A Advisor for you:

1. The low-cost, high-volume agents

The role of the “low-cost, high volume” M&A broker is made up of several large national networks, whose job it is to list a business for sale and then maximise its distribution to potential buyers. The term “broker” is deliberate to equate it to agents who sell commodities, since their approach to the role is not dissimilar. These brokers usually deploy analysts with little real world business experiences, who are trained on how to fast track a business from engagement to sale. Their fee is usually set low to attract interest, seeking to take advantage of the fact that most entrepreneurs have likely for years built their business on being economic and thrifty. The sales materials are limited and therefore can be quickly prepared for the widest circulation.

This is however far from a targeted approach and as a previous TIC buyer, I was regularly bombarded by such brokers harassing me with a host of wholly irrelevant opportunities involving retailers, maintenance providers and manufacturers from the most irrelevant sectors. While this “trawler” approach can be successful it rarely drives a premium value and since the low-fee comes with only limited support they will largely leave it up to a seller and his advisors to deal with buyer and any arising deal issues.

2. Credible agents which will initially invest in a well laid plan but lose focus overtime as they move on to new prospects

The next tier of M&A advisors are highly competent in their role and may involve accounting practises. They will prepare excellent sales materials and have a very large network that will ensure you are connected to a wide level of credible and interested buyers. They will usually be made up of business professionals (accountants and ex-bankers) and will walk you through the process and be highly motivated to drive any early sale. They are experienced players and can process quality businesses efficiently and effectively with great results.

The problem often is that their high charge-out rates limit any serious advanced or detailed review of likely deal issues within the business which may arise during subsequent diligence. In situations where deal issues then arise through buyer diligence, they will be less inclined to offer you full support since their high charge-out rates will have already exhausted the fee budget, as well as being distracted by supporting new clients that they have more recently taken on. This can impact both the deal success and ability for a premium value.

3. Specialist agents who give bespoke and personal attention to the sale, considering what action is required to optimise the best value for the owner

The last group of advisors are unique in a number of ways:

· their objective is to work with the sellers to achieve the best deal for the shareholders

· They also focus on optimising the exit value.

So what makes these different? Experience, perspective and goals

Let’s start with experience:

These advisors usually have real-life experiences in running and selling their own businesses and rather than rushing to prepare sales materials to list the business for sale, they instead seek to perform a holistic review of the business to better assess its risks and opportunities and consider how these may impact an optimal sale.

Perspective – sometimes playing the long game:

The importance of this approach cannot be overstated, since the reality is that many businesses looking to be sold, have challenges which can impact valuation. These challenges however can be identified, mitigated or at-least better positioned prior to discussions with the buyer, maintaining competitive tension in the future sale process.

The goal – presenting the best business for the best price

This last approach however usually involves delaying the sale process, to allow time for the challenges to be overcome and allow the business to be presented in the best possible condition – after-all, it is rare for a buyer to pay a premium for a business with defects that will need the investment of time and money to fix. Once the business is considered ready for the market, the advisors with their intimate knowledge of your business will work with you through the process to find the right buyer for both the buyer’s personal goals and at an optimum value.

Getting the right advice for your business:

This tried and tested approach is based on the maxim that “success occurs when opportunity meets preparation” and despite this being perhaps an obvious statement, it is one that is often neglected by sellers who believe they alone have the best finger on the pulse of both their business attractiveness and the optimum exit timing. It is indeed takes great wisdom and humility for a seller to place his trust in advisors to critically assess his business which he has put a lifetime of effort into building. The reality is that such a critique is not seeking to judge the business, but merely highlight areas that can be strengthened to make it more attractive to a buyer – since entrepreneurs rarely operate a business based on how it would look to a buyer – they simply are conditioned to drive it forward to the best of their ability.

There are many different ways to plan the exit from your business but ensuring you have the right advice and guidance to help formulate the right sale for you, is fundamental. Choosing a specialist advisor, with industry-specific experience and a long-term view of what’s best for your business – will allow you to get the most out of your sale – and allow you to choose the perfect time for your exit.

Red Swan Partners are experts in TIC. Our Partners are all experienced individuals with specific functional and general TIC expertise. Either singly or in a group, we can act as advisors to your CEO or Board and offer a fresh set of eyes to support your crucial decision-making, and help you make the right decisions for your business.

When you need advice, ensure you chose your advisor wisely!