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What to Look for in an M&A Advisor

by Dimitri Steinberg

We previously discussed some of the most important learnings we gleaned from selling over 100 businesses over the past 25 years. In this article, I discuss the things you should look for when deciding which Advisor to hire.

 

There are a number of important issues to consider.  Here are the 5 most important:

  1. Firm Focus:  

    • There are all kinds of businesses out there, from start-up to multi billion dollar established enterprises, operating in every industry.  What kind of business are you looking to sell?  If it’s an early stage, high growth tech company, you’ll probably want to work with a very different type of M&A Advisor than if you want to sell General Motors.  Focus can also mean whether the advisor specializes in Mergers & Acquisitions or do they engage in all kinds of other activities like Sales & Trading, Equity and Fixed Income Underwriting, etc.  

    • Furthermore, some firms that specialize in Mergers & Acquisitions will further focus on exclusively selling companies.  Just like when it comes to choosing your doctor, it’s a good idea to see an expert that specializes in exactly what you need help with. 

  2. Advisor Experience:  

    • Beyond the firm, you need to consider the individual experiences of the team advising you.  How long have they been an M&A Advisor?  How many companies have they sold?  Have they done deals in all kinds of market conditions?  

    • In addition, a great M&A Advisor should be able to empathize with a founder or CEO.  Have they ever started a company or worked at a startup?  Alternatively, have they been in a senior Corporate Development role which would allow them to know how the buyers of your company think?  It’s those other experiences that often distinguish the best advisors from all the rest.

  3. Senior Attention: Beware the bait and switch!  Many M&A advisors will trot out the senior bankers to win the business and then hand off the actual execution work to a much more junior staffer.  It makes total sense for the Advisory firm to leverage their senior professionals in that way.  That doesn’t mean it’s good for you, however.  In fact it’s really bad.  The truth of the matter is that being a good M&A advisor is all about giving great advice and that comes from pattern recognition, which in turn is based on depth and breadth of experience.  There is simply no way someone with only 5-10 years on the job can match another who has been doing it for 20-30 years.  In every deal there will be a handful of critical decision points.  This is when meaningful deal value is created or destroyed.  Because you won’t know when these will occur, you’ll want to make sure that you have an experienced advisor by your side throughout.

  4. Fit: You are going to be spending a lot of time working very closely with your advisory team.  You will be depending upon them for their advice and guidance at highly stressful points in a process that may be worth millions of dollars to you and your fellow shareholders.  You may rather work with a stern task-master or collegial buddy.  Some might prefer an Advisor with a sense of humor while others prefer all business.  The point is that it’s critically important to both enjoy their company and to completely trust their judgment.  

  5. Value: There is no such thing as a “standard fee” and the range of fees charged can vary dramatically.  Furthermore, there is little correlation between the quality of Advisor and the fees they charge.  In general, larger firms, with more overhead, will charge higher fees.  Just like you shouldn’t pick your surgeon based on their rates, we do not recommend picking an Advisor based on who is the cheapest.  Instead, focus on the value you will receive.  Ultimately, the question is whether they will help you get a much better price for your business.  In many cases, a smaller firm may be able to provide a higher level of senior attention and service for a better fee because they don’t operate with substantial overhead costs.  

Bonus Track: We also want to highlight something that you may have been told is important which is actually irrelevant: Personal knowledge of the buyers: You’ve probably heard that one of the things an Advisor should do is to know all the buyers for your business.  This is the biggest misconception out there for several reasons, including:

  • That’s your job: Contrary to common wisdom, the founder should understand who the best buyers are. The founder is living and breathing the business and industry in a way that no M&A Advisor can possibly match.  Beyond that, the business case - the reason the deal makes sense - generally needs to be developed collaboratively between buyer and seller.  As a Founder, you will need to help potential buyers of your business fully appreciate the potential combination benefits - the synergy value.  This cannot be done by an M&A Advisor, given the level of business understanding and intricacy involved.  Relying on your M&A Advisor, especially for an early stage high-growth tech company to do this, will represent a huge missed opportunity. 

  • Conflict of Interest:  Think about what it means to “know the buyers”.  It means that your M&A Advisor has been investing their time developing a relationship with these companies.  Why?  It’s not only to sell your business.  It’s because the M&A Advisor wants to ultimately work for and represent the buyers.  These companies are much bigger than yours and can potentially generate all kinds of fees for the M&A Advisor.  What this means is that your M&A Advisor is conflicted, whether consciously or not.  At the end of the day, if someone has a relationship with the other side, they cannot fully represent your interests.

  • Wrong Guy (or Gal):  It’s not the company, it’s the people!  The truth is that even when M&A Advisors “know” the buyer, they generally don’t have relationships with the right people.  For every potential buyer, there is going to be a “deal champion”.  That’s the person who is going to pound the table to get your deal done.  That’s the person that’s going to be responsible for overseeing your business once it’s acquired.  That person is likely a head of a business unit or a functional area. And that’s not who most investment bankers know.  They know the CFO or Head of Corporate Development, not the internal decision makers who will drive the acquisition of your business to a successful completion.


If you’ve received an unsolicited offer or wish to consider proactively selling your company, FounderPartners would be interested in helping you navigate the process.  
 

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