Whether selling a cherished business that took years of hard work to build, or contemplating the acquisition of a business, always follow these guidelines to select a well-qualified M&A Advisor to represent your best interests with the transaction and avoid costly mistakes.
By Michael Hannon
You would not engage a physician, an attorney or an accountant without first satisfying yourself that his or her qualifications are topnotch. You should take no less care in your search for a professional to advise you on the sale of your business, or with your purchase of another firm.
Not everyone who claims to be a capable M&A Transaction Advisor proves to be one in practice. Unfortunately, misjudging an Advisor’s credentials and their ability to navigate you through a business sale or acquisition transaction can prove to be a costly mistake.
A Qualified M&A Advisor
Several basic criteria that a truly qualified M&A Advisor should be able to satisfy are as follows.
Industry Reputation
Widely known, universally respected and frequently consulted—these are traits of professional stature and excellence in any type of business. M&A Transaction Advisors who have repeat engagements with their customers, are those with the kind of reputation you want on your side.
Industry Contacts
A competent Advisor will already know prospective M&A buyers of every size, in all segments of your industry, and in all regions of the U.S. The Advisor should have a database of prospective buyer contacts that they are able to draw upon to get the search quickly underway. Also ask the Advisor about their connections with well established, highly acquisitive publicly traded companies in your industry, as important leads for your sale transaction could likely come from these sources.
Industry Experience
It is essential that you engage with a deeply experienced Advisor who can hit the ground running with the transaction, rather than one you must spend many hours with, to “teach” the fundamentals of your business before they can even get started. Seek an Advisor with a long track record of successfully completing transactions in your industry (both sell-side and buy-side), and with management experience in a variety of disciplines, ideally gained while working directly with leading firms in your industry (including: accounting, finance, operations, business development and M&A). In short, find an Advisor who already possesses a strong understanding of the fundamentals of your business and industry.
Integrity and Business Ethics
Reputable M&A Advisors always avoid conflicts of interest by representing only the buyer or the seller in every deal—never both. Protecting confidentiality is also an unbreakable rule for M&A professionals. Seek an Advisor with an impeccable reputation for integrity.
Deal Process Knowledge
M&A transactions cannot be jury-rigged or improvised. The Advisor should be able to describe a proven process—a series of distinct and logical steps—that will ultimately lead to a timely sale of the business.
Business Valuation Expertise
Does the Advisor have specialized financial expertise in performing business valuations, which will enable them to calculate the estimated fair-market-value of your business, and perform financial analysis to solve for a sale price range that prospective buyers should be willing to pay? A well-qualified Advisor will possess the specialized expertise to calculate the estimated range of purchase price offers that you will likely receive for the sale of your business, at the outset of the process.
Deal Structuring Skills
Making the dollars work in an acquisition can be a highly complex assignment. Transactions can be structured as Cash for Assets, Cash for Stock, Stock for Assets, Stock for Stock, or any mix of these and other consideration. It is also important that the Advisor have the experience to provide you with upfront guidance as to your expectations for the probable sale price and deal structure, in order to avoid disappointment later. Does the Advisor have the unique combination of skills and experience required to structure and complete a deal that is fair for both sides, and has a high likelihood of actually closing?
Business Acumen
Before your business is put on the market, it may be best to grow its revenue, extend service contracts, cleanup the financial statements, eliminate non-essential expenses, streamline the administrative organization, optimize the physical assets or institute other changes to prepare the business for a sale. Does the Advisor possess the business acumen to anticipate how prospective buyers will evaluate the business, and, can they provide you with reliable guidance on how to maximize the value of the business during the time period it will take to make your company marketable? Hint: A true professional will never rush a transaction, simply for the sake of getting a deal done hastily.
Business Sale Marketing
A qualified Advisor will have the ability to assemble and produce a high-quality Confidential Information (Offering) Memorandum, which presents your business in its best possible light. This document should provide all information required by prospective buyers, which will enable them to compile their best acquisition proposal for the business. Make sure the Advisor has strong experience in producing professional grade marketing materials for the sale of your business.
Negotiation Talent
Tact and diplomacy are everything when it comes to the sensitive task of getting a buyer and a seller on the same page. Contract negotiation is both a science and an art; requiring specialized financial skills, knowledge of transactional law and business acumen; as well as strength, patience and emotional intelligence (“EQ”). A truly qualified Advisor must be able to leave both parties feeling good about the deal, long after it has closed.
Access to Private Equity Firms
It used to be nearly impossible for privately owned middle market companies (i.e., those with annual revenues of $3 million to $150 million) to attract private equity investors. However, in recent years these players have emerged as important sources of funding for M&As, and as buyers. Therefore, knowing who these parties are and the type of investment opportunities they are looking for, has become another key qualification for M&A Advisors.
Represent Your Best Interests
Selling or buying a business is typically a highly complex process, that can be fraught with unforeseen obstacles. Many entrepreneurial business owners might sell or purchase a business only once in their career. Hence, it is understandable that they may not possess the particular skills and experience (nor the time) required to navigate this new and unique challenge on their own, and wisely decide to retain the services of a professional M&A Advisor.
Whether selling a cherished business that took years of hard work to build, or contemplating the acquisition of a business, always follow the above guidelines to select a well-qualified M&A Advisor to represent your best interests with the transaction and avoid costly mistakes. Any M&A Transaction Advisor worth his or her salt should be prepared to provide you with satisfactory responses to all these points.
Michael Hannon is the Founder, President and Principal of Valuation Insight based in Boston, MA, a professional M&A Transaction Advisory Services firm providing its services to the owners of middle market privately-owned companies (for sell-side transactions), as well as to publicly traded companies and private equity firms (for buy-side transactions). Valuation Insights’ Principal has accumulated more than 30 years of experience while completing hundreds of M&A transactions for businesses in the basic service industries, having particularly strong expertise with businesses involved in waste collection and disposal, recyclable materials collection and processing, confidential document destruction, portable and septic pumping services, and vacuum and pavement sweeping service businesses. For more information, call (940) 230-3841 or visit www.valuation-insight.com.
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