Every year in the United States, over 300,000 businesses change hands between buyers and sellers, totaling in the hundreds of billions of dollars in value. Yet, while most if not all of the large capitalization companies in that 300,000 that go through the buy/sell process hire legions of investment bankers and consultants to guide them through the process, many lower middle market and small businesses choose to ‘go it alone.’ Usually, they make this choice because they simply want to avoid paying a success fee, but often end up leaving millions in value on the table on the buyer’s side. Other times, they choose not to hire an advisor because they simply don’t know any.
Here are 3 reasons why you should have an experienced M&A advisor on your side when entering into the buy/sell process.
1. FINDING THE RIGHT BUYER
One of the first questions we ask a potential seller is, “who do you think would be the best buyer for your company?” Often times the seller will tell us that key management would be the best buyer or that they have received an unsolicited offer from an outside source. After digging a little deeper, what we almost always find from these conversations is that the seller is unfamiliar with the M&A process and unaware that these two types of buyers typically do not provide the highest price or even best terms to the seller.
A professional M&A advisor will first explore potential Strategic and Financial buyers. These are typically larger and well-capitalized firms that not only have the documented ability to pay the highest price, but also have the synergies in place to justify paying a much higher price to the seller than existing management or individual buyers who currently do not operate in the sellers industry. In addition, management buyouts and individual buyers often lack the cash or access to traditional bank financing options that strategic and financial buyers do. Therefore, they almost always require seller’s to hold a substantial amount of paper to make the transaction a feasible one. Not only do Strategic and Financial buyers tend to pay more for a given opportunity, they will also likely offer better terms. Selling a company is not just about finding a buyer, but about finding the best buyer.
2. TEAM LEADER
Selling a business is truly a team effort. A professional M&A advisor will act as the team leader and single point of contact, coordinating all the related parties (buyers, sellers, transactional attorneys, valuation firms, tax experts, accountants, etc.) to move forward towards the common goal, a successful closing! In addition to acting as project manager, a professional M&A advisor may bring additional specialists to the table if necessary. Sellers often have attorneys or CPAs that they’ve worked with over the years. But if these parties don’t have specific expertise in the transactional M&A process, it may be optimal to consider working someone who does have this experience to assist with the transaction. CPAs who lack transaction experience may not be aware of the various ways in which a seller can structure a transaction to minimize tax exposure. Attorneys who lack this experience may not adequately understand the various and complex ways to minimize the risk exposure to the seller. Inexperienced advisors in general can lead to unnecessary delays and value loss in the deal process. And if there is one constant in the buy/sell process, it’s that time kills deals.
3. CONTROLLING THE PROCESS
Sellers who choose to undergo the sale process on their own can often get distracted from their core business operations. This is not good for value. Buyers place a high value emphasis on growth of the company, both past and future. If the owner becomes distracted with the process, and the business is affected, this can have negative implications on a buyer’s perceived value. The M&A advisor shelters the owner from the day-to-day workload that the buy/sell process requires. The daily regimen of conference calls, emails, information requests, financial documentation, meetings, tours, and so on can easily add up in the hundreds or even thousands of hours. These demands are increased if there are multiple buyers considering the acquisition. Not yet mentioned but crucial in this process is discretion. In most cases, it is critical for the seller’s business that the buy/sell process remain strictly confidential, specifically from employees and competitors. News that the company is “for sale” or in the midst of that process can have employees running for the door and competitors telling your clients any number of tales that can only work against you. An experienced advisor will guide the seller through this process to ensure that the buy/sell is kept in strict confidence.
Ultimately, choosing whether or not to hire a professional M&A advisor is a business decision that every seller must make. Do they want to undergo a process that takes on average 10-12 months to complete, and hundreds (maybe even thousands) of hours all on their own just to try and save a few points?* Alternatively, they could seek a trusted, certified advisor to lead the process of procuring the ideal buyer, at the highest price, at the most optimal terms, while sheltering them from unnecessary risk and liability. And, at the end of the day, they only pay up if the job is done right.
* And “go it alone” potentially leaving millions in value on the table from a “professional buyer” seeking unknowledgeable sellers?