M&A advisors are professionals who advise clients on acquisition or sale of a business and execute such transactions. They can represent either the buyer or seller.
When M&A advisors advise a firm seeking to acquire another company, they are referred to as a buy-side M&A advisor. The buy-side advisor is responsible for helping the company identify potential acquisition targets, performing due diligence on proposed targets, valuing the target and the proposed synergies of the acquisition, negotiating with target firms to establish the terms of the deal, and closing the deal.
We often represent sell-side transaction that involves culmination of years of business owners’ commitment and investment, and it can be the most transformative event in their lives. In such cases, the buyer is usually highly experienced at acquisitions and may have a team dedicated to this task. A seller may easily make fundamental yet costly mistakes or simply get out-gunned without being represented by a sell-side M&A advisor, who plays a crucial role both before and during the sale.
Long before your sale, an experienced M&A advisor makes you realize that there may be considerations other than mere price while consummating the transaction. They not only give you guidance on valuation expectations but also structure the transaction in a manner that takes into account non-financial considerations. In addition, depending on whether you want to sell your business internally (e.g. management buyout) or externally (financial investor vis-à-vis strategic buyer), a good advisor helps you understand several options available to you.
Before we get into the specifics of their role at each stage of the sale, it’s worth appreciating that besides the value proposition an M&A advisor offers while running a transaction, they also allow you to focus on your business and not let the transaction distract you from achieving business milestones, while they do the heavy lifting with buyers.
While moving forward with the transaction, an advisor plays a critical role in preparing key marketing materials. Since strategic buyers and financial investors review hundreds of such documents every year, an advisor’s expertise in preparing them can significantly increase the number of parties keen in evaluating your business.
Your advisor’s industry connects and deal-making experience enables them understand the markets in which your business operates, what the buyers are looking for and how to position the company’s story optimally to put it up for consideration in the market.
As the deal progresses, you’ll start receiving serious expression of interest in buying the company and your advisor will negotiate the final terms (e.g. valuation, key rights, transaction structure, closure timeframe) of the sale. If you don’t have a second offer, your advisor may create an illusion before other potential buyers that you do have one or at least create fear that you will get another offer.
Your advisor’s ability to negotiate on your behalf can be useful as they serve as a cushion to prevent any bitterness in deal-making process from affecting your post-sale relationship with the buyer. Having an intermediary push on these deal points also gives the seller a fall back if the terms are pushed too hard. Deals almost die numerous times in the process. Seasoned advisors know how to revive them and bring the discussion back on track.
An M&A advisor also ensures a smooth due diligence process that is followed by signing of purchase agreement and sealing the deal.
Engaging an M&A advisor to represent you adds instant credibility to potential buyers that the seller is serious. A buyer attributes more respect to the process if there is an advisor, not necessarily because they respect such professional (though usually they do), but because they believe (may be wrongly) that they can no longer completely control the process. Buyers speak freely with such intermediary without getting into emotional dialogue directly with the owners. Advisors can propose ideas that may help in crafting a successful transaction.
Merely appreciating what value an M&A advisor brings may not be enough for the business owners. The bigger task for them is to select a right advisor, as going with a wrong one can cost them more time and money and worsen their outcomes.