The sale of a business is not something to be taken lightly. While this might seem obvious, nothing rings truer for those involved in managing the sale of their business, and who experience the complexity and complications that often come with M&A transactions. This article will discuss 7 reasons why busines owners should work with professional M&A advisors.
The M&A process requires a lot of time, effort, expertise, and can become a heavy burden for the business owners and the broader leadership team. When the people involved in the M&A process are unfamiliar with the nuances of the sales process, the transaction becomes convoluted, resulting in a higher likelihood of deals falling through or sellers leaving millions or tens of millions of dollars on the table.
Enter M&A advisors. By the time a founder and management team decide to exit their company or to acquire a company, they have likely already become aware of M&A firms. But their exposure to M&A professionals does not answer the basic question: “What is a mergers and acquisitions advisor? and why work with them?”
Firms offering M&A advisory services help stakeholders navigate the buying, selling, and merging processes. Unlike financial advisors or full service investment banks, these firms exclusively deal with businesses and corporations, guiding them through the complex landscape and process of business transactions.
While an advisor might be key in helping you master the M&A process, choosing whether or not to make use of these services does add yet another layer of decision-making to an already complex process. For any business owners and leaders with past M&A experiences, their decision to hire an advisor to guide them through the M&A process was a no-brainer in hindsight, but wasn’t quite clear at the start.
We’ve highlighted a few key responsibilities of a mergers and acquisitions advisor to make it crystal clear why making use of these services can be a massive value-add during your liquidity event. The return on investment of these services can easily be greater than 10x.
About the author
David Qu is a mergers and acquisitions expert and a strategic advisor with broad practical business experience in various industries, markets, and business functions. He gained expertise from decades of hands-on operational training, management consulting, and senior corporate M&A executive roles with well-known global companies. As a trusted partner and expert advisor to his clients, he brings strategic insights, practical expertise, business management know-how, and execution blueprints to help you maximize the value from the sale of your business. Contact us to learn more.
M&A advisors save you time
In working with business owners and leaders throughout the years, we have gained a deep understanding of how scarce and valuable a management team’s time is. There is a laundry list of items just to operate a business, and a merger or acquisition can take time away from the management team responsible for tackling that list.
Hiring an advisor allows owners to focus on what they do best: growing their business. A large part of the M&A process is contingent on the continued performance of the business; underperformance makes it difficult to complete a transaction, especially in a competitive market, and can drag out the process for longer than it needs to be.
Owners and management teams already have packed schedules, and they run the risk of taking their eye off the ball for too long when they have to manage an M&A process too, with performance suffering as a result. Owners have a clear competitive advantage when they can allocate as much time as possible to running their business and utilize a trusted advisor to navigate an M&A process.
M&A advisors save you energy
With time saved comes energy saved. The textbook role of the professional advisory services industry is to facilitate the efficient flow of capital and liquidity in the marketplace. As an advisor, our role is to ensure our clients are spending their time and effort efficiently while also guiding them through the smoothest possible process to the most optimal outcome.
Advisors undertake an immense amount of work in preparing marketing materials to strategically position the business, utilizing industry-specific knowledge and creativity to craft a clear story. To drive a competitive process, advisors structure the stages and timeline so a broad group of potential buyers have ample time to understand the opportunity and get up to speed on a similar timeline. Redistributing these responsibilities allows owners and key leaders to avoid unnecessarily dealing with transaction obstacles – or accidentally becoming them – when they could be exerting their energy elsewhere in their business.
M&A advisors save you money
Outsourcing M&A transaction responsibilities can be a wise investment in your business. Their fees are typically based in large part on commission, but some may charge a flat rate upfront, depending on the type of company you run and its worth.
Value maximization is one of the clear incentives of hiring a bank to help with a transaction. By running a process independently, a company is more likely to close a transaction that leaves money on the table, includes unfavorable terms, or doesn’t fully maximize the company’s potential. Even worse, by not bringing in an advisor to properly present information, build a process, and de-risk deal dynamics, founders and management teams run the risk of jeopardizing the transaction altogether.
M&A advisors reduce risk
Delegating the process to a firm with financial expertise can help secure the likelihood of the deal happening in the first place. M&A advisors ensure buyers are doing the appropriate level of diligence to understand business dynamics. Advisors are experts at pushing buyer diligence upfront as much as possible, enabling sellers to differentiate bids on factors other than value (like term specificity and certainty to close), which massively de-risks the transaction.
Expert advisors can reduce or eliminate the risks of a M&A process by:
- Acting as a sounding board for how best to internally approach an M&A process with employees, clients, and other stakeholders
- Clearly analyzing and presenting information and data to buyers
- Building competitive tension with buyers
- Leveraging the right resources at the right stages before going into due diligence to help avoid red flags, re-trading, or the deal falling apart
- Negotiating key deal terms to ensure that the transaction is fair, transparent, and acceptable to all parties
M&A advisors leverage relationships they already have
The social toolbox of an M&A advisor is invaluable when it comes to maximizing a transaction’s potential. Whether you would prefer running a broad process or a targeted buyer search, an advisor’s existing relationships bring added value to a transaction and can be strategically leveraged. An advisor has access to a broad list of potential buyers and insight into their preferences & behaviors. Not only can they create a competitive sales environment with their unique understanding of the landscape, but they know how to market to attract the attention of the relationships they already have and serve as a matchmaker.
Better yet: an advisor with industry-specific expertise can understand and strategically position complex businesses, ensuring a curated buyers list that leverages their expertise to maximize value creation.
M&A advisors are experts
For software companies specifically, bringing in an advisor with a wealth of experience in software is integral to success. From start to finish, advisors are laser-focused on each stage of the process to ensure the proper steps are taken to drive the transaction forward. Drawing from a wealth of experience, pattern recognition, industry relationships, and a devoted team, advisors have the sole responsibility of completing transactions and can devote all of their focus and energy to the M&A process. Because of this, they can have a constant pulse on market trends, buyer appetites, and the most important metrics and deal considerations.
A Typical M&A process consist of 50 to over 200 targeted buyers, multiple lawyers, accountants, management teams, and several other third parties.
A typical M&A process consists of 50 to over 200 targeted buyers, multiple lawyers, accountants, management teams, and several other third parties. Managing communications and relationships, the information and analysis shared, and the timing and steps of a transaction are some of the areas where advisors can add tremendous value. Experts know what levers to pull and when to reduce the risk of a transaction and how best to drive competitive dynamics. And depending on how involved you’d like to be in the process, they can serve as translators and help you understand the financial jargon and regulatory requirements along the way.
Hiring an M&A advisor equips you with confidence
Business owners are natural risk-takers who are certainly capable of executing an M&A transaction independently. However, going it alone reduces efficiency and time spent on the core competencies of the business. Self-representation drains the time of founders and management teams who typically don’t have expertise in running an M&A transaction and ultimately leads to a lower probability of closing a deal and a lower valuation. By bringing in a trusted team of dedicated experts, a company can be confident it can remain focused on its business performance while still working toward a favorable outcome.
The ultimate measurement of success in an M&A process is knowing whether the best possible outcome has been achieved. Hiring an advisor, and the right one at that, can make or break a transaction. If you would like to discuss how RIMONARK adds value for our clients or have questions about the M&A process, don’t hesitate to reach out.
About Rimonark Advisors
Rimonark Advisors is a client-centric mergers and acquisition advisory firm based in Cincinnati, Ohio. We help clients maximize wealth through business growth advisory, business sale preparation (exit planning), and business sale transaction services. We are here to help our clients get ready for a successful business sale, get the most value, and achieve fruitful confident transitions for themselves, their families and their stakeholders. Ultimately, we help clients harvest years of hard work by unleashing business cash flows and converting them into generational wealth. Contact us to learn more.
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