The question arises with nearly every potential client we meet with: Why do I need an M&A advisor to sell my business? Can’t I just do it myself and save a significant amount of money in fees? How hard can it be to close a deal with a buyer? I negotiate contracts all the time with my clients and vendors.
And the answer is always the same: You can sell your company on your own. Businesses change hands all the time without professional representation for either party. But going in you have to be aware that it will cost you in other ways if you go forth on your own. For example, you need to plan on spending at least 1,000 hours of your own time spread throughout 9-18 months to close a deal with an optimal buyer. This is an intangible cost that you will need to factor in order to adequately market your business.
But that is just one cost to you that needs to be considered. In reality the benefits of having professional M&A advice far outweigh the fees involved. According to PE Hub, a leading online publication that tracks the private equity world, here are a few of the benefits that an M&A advisory firm can bring you:
Investment bankers can add significant value in an M&A process…Typical benefits of having a banker in an M&A process include:
1) Having an agent to advise on market trends and valuation
2) Approaching potential acquirers with which the target’s executive management would not otherwise have contact
3) Taking the difficult, “bad cop” negotiating position
4) Co-managing the sale process with the target’s legal counsel
We would obviously concur with all of these. Each, individually, is equally important. But to this list I add one more: Hiring an M&A advisory firm allows you to focus on running your business while your advisor manages the M&A process.
As mentioned, 1,000 hours of your own time is typically required to close a deal. Hiring an M&A advisor will free those 1,000 hours up, allowing you to focus your attention on the company itself. And why does this matter? Because all buyers focus on one key issue when negotiating: How is the company doing in the current fiscal year? Are they achieving their projected revenue and profit goals?
Too many business owners who do not have representation make the mistake of ignoring the operations of the company while in market. Nothing can kill a deal faster than a buyer learning that the 10% projected growth shown in the pro forma for the base year is actually trending to be far less.
A scenario like this raises several red flags for buyers. First, it implies that the company is more dependent on the current owner than promised. If a seller is spending all of his/her time dealing with buyers and the company is suffering, then a buyer will have concerns that the trend will continue upon the eventual departure of the owner. The last thing you want to demonstrate to a buyer is owner dependence!
Secondly, it will call into question your entire 5-year pro forma projection. If the base year, the current fiscal year that you are marketing the company in, is off by a significant percentage, then during negotiations buyers will make adjustments to your future earnings as well and/or increase the discount rate used to calculate the present value of future cash flows. Either way, the ultimate valuation of your business will suffer and you will not only get less for your company, you may be required to stay with the business in the form of an earn-out for 2-5 years post-acquisition in order to reach pre-determined sales and earnings levels – which will dictate ultimately how much you get for your company.
These scenarios you definitely want to avoid. Why risk your financial legacy and most likely your family’s entire net worth by going cheap and not hiring an M&A advisor? The costs in terms of chips left on the table far outweigh the expense of an advisor’s fees. Don’t just take my word for it; listen to some of our clients who have reaped the financial rewards of hiring Generational Equity to represent them.
Hopefully by reading this article you have a better understanding of the value M&A advisors bring to middle-market companies. One final thought: For many of you the sale of your business will be the ONLY M&A transaction that you participate in in your lifetime. Do you really want to trust the success of the deal to a novice (you) vs. using a team of professional advisors like Generational Equity brings to the table?
No need to answer that question!
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2014 Generational Equity, LLC All Rights Reserved
it all started with a conference.
start your story today,
speak directly with one of our senior advisors +1-972-232-1121
The information we learn from customers helps us personalize and continually improve your experience. Here are the types of information we gather.
We receive and store any information you enter on our Web site or give us in any other way. We do not sell or rent your personal information to others without your consent. We use the information we collect only for the purposes sending promotional information, enhancing the operation of our site, serving advertisements, for statistical purposes and to administer our systems. We DO NOT use third parties to provide customer service, to serve site content, to serve the advertisements you see on our site, to conduct surveys, to help administer promotional emails, or to administer drawings or contests, but reserve the right to do so in the future without advance notice.
By submitting my name electronically and clicking the “submit” button, I understand that I am providing Generational Group, Inc., Generational Equity, LLC, Generational Capital Markets, LLC, DealForce LLC, their affiliates, representatives, contractors, etc. (“Generational Group”) my telephone number, which may include a number that is wireless and/or a number that is on a national, state, or other Do Not Call registry or list. I hereby consent and agree to receive telephone calls including any autodialed and/or pre-recorded telemarketing calls and/or text messages (telemarketing) from or on behalf of Generational Group at the telephone number provided. I further consent and agree that telephone calls may be made using automated technology such as an automatic telephone dialing system, artificial or prerecorded voice, or SMS text messaging. Consent is not a condition of purchase. I further warrant and represent that any telephone number provided is not on any state or national Do Not Call Registry and that by agreeing to these terms and conditions that if any number provided is on any such registry, I hereby consent and agree to receive telemarking calls and/or communications including any phone calls, text messages, URLs, links, emails, etc. to the telephone number(s) and/or any e-mail addresses provided. I understand that by entering my name in the electronic form provided, that I am signing my name as equally as if it was my handwritten signature and that it is my intent to provide an “electronic signature” as that term is defined in state and federal law, as well as industry practices for e-commerce.
For reasons such as improving personalization of our service, we might receive information about you from other sources and add it to our account information.
Generational Group may license the use of its intellectual property including but not limited to its name, likeness, and logo for the use of affiliated offices. Such affiliated offices may not be owned, controlled, managed, supervised or staffed by employees, officers, or agents of Generational Group. Affiliated offices may be independently owned and operated. For more information about a particular office, please contact Generational Group at its office in Dallas, Texas.
This page may contain other proprietary notices and copyright information, the terms of which must be observed and followed.
Information on this web site may contain technical inaccuracies or typographical errors. Information may be changed or updated without notice. Generational Group may also make improvements and/or changes in the products and/or the programs described in this information at any time without notice.
Generational Group does not want to receive confidential or proprietary information from you through our web site. Please note that any information or material sent to Generational Group will be deemed NOT to be confidential. By sending Generational Group any information or material, you grant Generational Group an unrestricted, irrevocable license to use, reproduce, display, perform, modify, transmit and distribute those materials or information, and you also agree that Generational Group is free to use any ideas, concepts, know-how or techniques that you send us for any purpose.
Our computer system protects personal information using advanced firewall technology.
Information Generational Group publishes on the World Wide Web may contain references or cross references to other products, programs and services that are not announced or available in your country. Such references do not imply that Generational Group intends to announce such products, programs or services in your country. Consult a Generational Group representative for information regarding the products, programs and services which may be available to you.
Generational Group makes no representations whatsoever about any other web site which you may access through this one. When you access a non-Generational Group web site, please understand that it is independent from Generational Group, and that Generational Group has no control over the content on that web site. In addition, a link to a non-Generational Group web site does not mean that Generational Group endorses or accepts any responsibility for the content, or the use, of such web site. It is up to you to take precautions to ensure that whatever you select for your use is free of such items as viruses, worms, Trojan horses and other items of a destructive nature.
IN NO EVENT WILL Generational Group BE LIABLE TO ANY PARTY OR ANY DIRECT, INDIRECT, SPECIAL OR OTHER CONSEQUENTIAL DAMAGES FOR ANY USE OF THIS WEBSITE, OR ON ANY OTHER HYPERLINKED WEBSITE, INCLUDING, WITHOUT LIMITATION, ANY LOST PROFITS, BUSINESS INTERRUPTION, LOSS OF PROGRAMS OR OTHER DATA ON YOUR INFORMATION HANDLING SYSTEM OR OTHERWISE, EVEN IF WE ARE EXPRESSLY ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
Furthermore, all information contained within this website is the property of Generational Group.
Success, you have been added to our list.