By John Sullivan
A middle-market company considering an outright sale or recapitalization should be consulting with and ultimately engaging an M&A advisor. As we’ve said before, a reputable M&A advisor will increase the likelihood of you getting a deal done, and increase the valuation of your company with a competitive market process (See “Understanding the M&A Process” and “Recent Study Finds Private Sellers That Hire M&A Advisers Receive Premium Valuation”).
The question becomes, “How do I choose a reputable M&A advisor to represent my company in a sale?” There’s a lot to consider when choosing an advisor, but we believe you should focus on four primary variables; experience, process, team and fees.
You hire an M&A advisor to create incremental value with a process, so make sure they have a long track record of doing so. The best way to gain insight here is to understand their deal experience (how many deals have they closed) and their track record for achieving premium valuations for companies like yours. Do they understand your business and industry? Have they handled deals of similar size and nature?
Every good M&A advisor makes a market with a process, however, there are degrees of how in depth an advisor will go on the individual parts of the process. Ask questions about the advisor’s process to better understand how disciplined they are at seeing you through each step. Some cut corners, and this is especially the case if they don’t have depth to their team (see below). Areas of deficiency might include not taking the time and energy to present your company in the best light, not working to find or understand the buyer universe, not marketing with the zeal necessary, or getting you to an Letter-of-Intent, but not seeing you through due diligence. Great advisors don’t skip a step, and they work hard throughout the entire process to position your company for a successful close.
To test an advisor’s depth of process, ask if they have their process documented. Do they keep copious notes during the marketing part of the process, like how many times they’ve reached out to buyers and the feedback they’ve received about the deal? Also, ask for a sample project plan, how they update clients, and ask how often they update clients during the process.
Running an M&A sell-side process properly is time intensive and requires a focused effort from a team of professionals. You only get one shot at the process so you do not want to skip a step, because every detail is important. When choosing an M&A advisor, you want to know that your deal is getting the attention and energy it requires. You should understand the depth of the team you’re engaging -their backgrounds and experience. You’ll also want to understand who will be working on your deal and how the team dedicated to you will divide those roles and responsibilities.
You can also ask how many deals the M&A advisor and their team handle each year and the typical size of their deals. If they are a volume shop and/or your deal is small relative to their average, they may cut corners or not give your deal the attention it needs. If they don’t have bench strength you should have a healthy level of skepticism about their ability to do the work necessary for optimal results.
Fees are an important consideration when choosing an M&A advisor, but should always be in the context of the three other factors previously mentioned. If you don’t consider these others you could be paying lower fees relative to other advisors but really be overpaying for the services provided. On the other hand, you could be paying higher fees relative to other advisors, but receiving a bargain based on the service and ultimately the value provided in the way of a deal getting done at a premium valuation. Assuming the fee is in line with the market for similar services, the key here is to make sure the fee structure keeps your advisor properly incentivized to work in your best interest. See our recent blog “Understanding M&A Advisory Fees” if you would like additional details on common fees and fee structures.
If you focus on these areas when interviewing M&A advisors, you’ll learn a lot in the process. Don’t just focus on their answers, but seek supporting evidence. A reputable M&A advisor will have case studies, sample work products, process documentation, and positive past-client feedback they are happy to provide to support the quality of their work and process.
About Founders Investment Banking
Founders Investment Banking (Founders) is a merger, acquisition & strategic advisory firm serving middle-market companies. Founders’ focus is on oil and gas, SaaS/software, industrials, internet, digital media and healthcare companies located nationwide, as well as companies based in the Southeast across a variety of industries. Founders’ skilled professionals, proven expertise and process-based solutions help companies access growth capital, make acquisitions, and/or prepare for and execute liquidity events to achieve specific financial goals. In order to assist Founders Investment Banking with securities related transactions certain Principals are registered investment banking agents of M&A Securities Group, Inc., member FINRA/SiPC. M&A Securities Group and Founders are not affiliated entities. For more information, visit www.foundersib.com.