In business and in life, there are certain things that always should and should not be outsourced to a third party. For instance, you should not completely outsource the raising of your children, but outsourcing the pouring of a new concrete patio in your backyard is a no-brainer. When it comes to the selling of your business, engaging expert advisory should be such a no-brainer. In what follows, we’ll discuss some of the reasons you need to engage with an M&A advisor and some of the downfalls of not doing so.
Buyers have more experience
Repetition is the driver of true expertise. In M&A, buyers often buy dozens of times–or more–throughout their careers. Sellers, on the other hand, typically sell only once or twice in their lifetimes. This is one of the biggest risks to business sellers. With experienced buyers in the process, sellers can often overlook critical deal details, are harangued through negotiations and may ultimately not receive the high valuation or ancillary deal terms they may have desired.
Buyers can also be shark-ish in their treatment of sellers. They’ll look for proprietary deals, low-ball all day long and ultimately know where they can take advantage in some of the finer points of the deal. If nothing more than providing an extra pair of eyes, an advisor is absolutely crucial to this process.
“I already know the buyer I want”
Perhaps a business buyer has already approached the seller with a reasonable or even generous offer to acquire the business and the seller is ready to get the deal done. There are hundreds of deals done each year behind the scenes between buyers and sellers where no official representation is included. Unfortunately, these scenarios–unless they involve good friends–often leave more money on the table than most sellers would want.
Here’s a real life example. We were contacted by a seller who already had a reasonable offer on the table from a motivated buyer. The seller was not convinced it was the very best deal they could receive. Ultimately, he was right. After going through our standard mergers and acquisitions process, we took the company to market and obtained a high premium in excess of the original offer, our business valuation and the buyer’s expectations.
Even if you know the seller you want, you like them and you like their offer, they may not have been maxed-out on their willingness to pay. A helpful advisor can bring multiple motivated buyers to the table, helping to significantly boost the value of the company.
“I’m cheap and don’t want to pay the M&A advisor fees”
In the aforementioned example, the excess the seller received from the enhanced negotiation process and strategic auction was in excess of the initial offer and the seller fees in the millions of dollars. The six figure payout to the advisor was ultimately a complete non-issue for the buyer. Being unwilling to pay a retainer or being disturbed by the ultimate consultant fees charged by many an investment bank, the owners of the business can being making the most penny-wise and pound-foolish decision EVER.
Let’s go back to our previous example. Without outside assistance, they would have left approximately $2M in after tax and fee dollars on the table. This was a small family-owned business that had been in the family for years. $2M in excess of our fee was an easy call to make for them and they were more than willing to pay.
Ultimately, a great consultant can also bring discipline to what is typically a very ethereal process where buyers often need to be pushed over the edge in getting a deal done. In some cases, if you want to sell a business fast, the right advisor is the best thing you could ask for in maintaining a strict and steady process until closure.
Entrepreneurs are a squirrely bunch. They’re the trailblazers who often say, “I can do this myself. I don’t need anyone else’s assistance. In fact, that’s how I got to where I am in the first place.” This is true for the business, but the truly wise manager will take the advise from others, work with an expert and go through the process the right way. There are too many legal, ethical, negotiation and structural decisions in most deals for a typical owner to have and know absolutely everything. Going it alone is almost never ideal.