9 Benefits of Hiring an M&A Advisor
When considering selling your business, you might be asking yourself, “should I hire an M&A advisor or attempt to sell the business on my own?”
M&A advisors have a reputation for being expensive. They are. At MidStreet, we charge a Double Lehman, which can work out to anywhere from 4.5-10% of the purchase price of the business alone.
But if the value the advisor brings to the table exceeds their cost, doesn’t it make sense to hire them?
M&A advisors manage the entire process of the sale, saving you time and money while you focus on running your business.
At MidStreet, we have helped hundreds of owners navigate the sale of their businesses and provided millions of dollars of value, whether from optimizing deal structures or pitting buyers against each other.
In this article, we will cover how M&A advisors maximize the value you receive for your business, protect your confidentiality, negotiate on your behalf, and provide you guidance and education on all aspects of your sale.
Let’s jump in.
Disclaimer: Although effort has been made in providing accurate information, MidStreet does not warrant that accuracy and is not liable for any errors or omissions. MidStreet, nor its employees, are licensed tax professionals or attorneys. Readers are strongly encouraged to confirm tax and legal issues with accountants and attorneys in your respective state or province. The article is based on information as of Spring 2022.
1. They Help Maximize The Value of Your Business
Every day, business owners sell their companies to individuals or investment groups without the advice of an advisor. And every day, owners lose out on millions because they don’t know the true value of their businesses.
Working with one buyer without a third-party opinion of value is a great way to not get what you deserve at the closing table.
The best way to ensure you get the most for your business is to get a business valuation performed. This will help you understand how your business is valued and what it could realistically sell for.
Experienced brokers can also connect you with professional advisors who can able to help you understand your tax liability. For example, if your company is structured as a C-corporation, we’ve had CPAs we work with often recommend selling the business in a stock sale instead of an asset sale.
2. They Pit Buyers Against Each Other to Drive up Price
M&A advisors are masters at pitting buyers against each other, creating urgency, and raising the overall selling price of your business. Some owners try to do this on their own, but doing so is a recipe for breaches of confidentiality.
Since brokers are a third party and not affiliated with your company outwardly, they can communicate on the front lines with interested buyers and keep your confidentiality protected as you run your business. This expands the buyer pool significantly.
As you get closer to accepting an offer, the broker will mediate buyer-seller meetings, allowing you to meet the buyers they have vetted.
Often, these meetings will happen back to back, and discussions will come up with buyers about things discussed previously with other buyer candidates, further increasing the buyer’s feeling of urgency and likelihood to submit a quality offer.
3. They Protect Your Confidentiality in The Sale
Confidentiality is a huge part of why it is important to have a broker on your side when selling your business. Intermediaries are able to protect the discreet nature of your sale by withholding your personal and identifying information until later in the process when buyers have been thoroughly vetted and signed NDA’s. Read more about our process for qualifying buyers.
Experienced brokers will know how to talk with buyers in a way that mitigates your risk of a confidentiality breach. When you sell your business on your own, there is a higher risk of a confidentiality breach.
MIDSTREET TIPConfidentiality breaches can lead to customers, competitors, and employees finding out about the sale. This may result in your customers or employees getting poached by your competitors or leaving on their own.
4. They Focus on Selling Businesses
Many owners have run their business for decades. It is an amazing accomplishment that you should be proud of. However, most have never sold a business before.
Quality M&A advisors work on selling companies every day. If you find one that understands your business and has sold companies of a similar size before, you have a higher chance of receiving the best price and terms.
Advisors make it their job to help owners transition into the next period of their life and handle the biggest asset they have. We always recommend when you are looking for an advisor who is the right fit for you, read their reviews, view their success stories, and ask for references.
MIDSTREET TIPGood M&A advisors have sophisticated sales and marketing processes designed to advertise businesses for sale. They also have a deep network of private equity groups (PEGs), strategic buyers, and independent sponsors.
5. They Will Educate You About the Process
As we mentioned above, while you specialize in running your business, brokers specialize in selling companies. Your M&A advisor will serve as your guide throughout the entire process of selling your business.
They will prepare you on what to expect and explain what is involved so you can easily understand it. All quality M&A advisors have a detailed process they follow in a sale, from how they market your business, vet buyers, and manage due diligence and closing.
They will use that process as a foundation for educating you on all stages of the deal. They will also be your sounding board for any questions like “How do I maximize the value of my company?”
If you have questions that make more sense to ask another advisor, they can also point you to who on your deal team may be a better resource.
6. They’ll Negotiate on Your Behalf
Once the broker posts the web write-up of your business on listing sites and starts fielding interest from strategic and PEG buyers, negotiations begin.
For example, buyers will try to frame the discussion from their first inquiry by battering the price right away, requesting changes to the NDA, and asking a ton of questions to try to throw the M&A advisor off their game. This is their way of testing how well the broker negotiates on your behalf.
If the buyer can walk right over the broker in the beginning stages, they set the tone for the rest of the deal.
Buyers will try to probe for information about the business before signing the NDA. Fortunately, experienced M&A advisors know how to handle sophisticated buyers who negotiate business acquisitions day in and day out.
We have seen some buyers go as far as pretending that they are following up on a deal when they have never called in before. This is their way of fishing for information about confidential deals.
A good M&A advisor will have an updated database of who they have spoken to and will be able to easily identify nefarious buyers when they call in.
By using an M&A advisor, you will be able to bypass the back and forth between you and prospective buyers. You can also rely on them to represent your interests, identify good offers from bad offers, and determine what buyers may be willing to agree to.
7. They’ll Let You Focus on Running Your Business
Selling a business is time-consuming, especially if you try to do it on your own while running your business. M&A advisors help manage all of the cumbersome tasks of selling a business while you focus on operating the business and keeping it profitable.
For instance, they will perform a business valuation, create marketing materials, manage buyers, and facilitate the entire due diligence process. Each of these tasks can take weeks, which could prolong your sale if you tried to do it all on your own.
A broker will keep you informed of the status of your deal every step of the way and reach out to you occasionally with questions or document requests. Later in the process, they will loop you into buyer-seller meetings with select qualified buyers.
8. They Can Connect You With Professional Advisors
Since your broker executes multiple deals every year, they should have a network of professionals who have experience with transactions. Because of this, they can help refer advisors you can add to your deal team.
These professionals may include:
- A transaction attorney
- A CPA
- A broker/ M&A advisor
- A wealth manager
- A tax strategist
By forming a solid team of these professionals with transaction experience, you will have the best amount of guidance available throughout your sale. Their expertise can save you hundreds of thousands, if not millions of dollars on the sale.
9. They’ll Give You Guidance with Deal Structure
Experienced M&A advisors will be able to help you understand potential deal structures and what you would be agreeing to if you were to accept the offer. Although an offer price may look appealing, the terms of the deal matter a lot.
As the old saying goes, “you can set the price if you let me set the terms.”
It’s key to have a deal attorney and a business broker on your side. Your broker will be able to analyze each offer to let you know if it is more favorable to you or the buyer.
Your M&A advisor will also be able to assist you in finding creative ways to solve problems that may come up. For instance, if there is a disparity in price, an earn-out or promissory note could help bridge the gap in negotiation. If you install either of these structures incorrectly, they could be set up drastically in the buyer’s favor.
Know The Value of Hiring an M&A Advisor
In our experience, the value that a merger and acquisition advisor adds to the sale almost always makes up for and surpasses the success fee you pay.
They will manage your sale from start to finish, handling marketing, confidentiality, buyers, negotiations, deal structures, and all other aspects of the deal.
To receive this level of quality, you will need to hire the right broker for you. Learn how to find a great business intermediary to sell your business by reading “5 Tips to Find the Best Business Broker.”
We have helped guide many business owners through the complex process of selling their business. To get assistance with selling your company, reach out to us today.