Not Hiring an M&A Advisor: An M&A Mistake to Avoid

By Generational Equity


A few weeks ago, the good folks with Axial released their annual trend report for M&A activity for the calendar year. They focused on five key areas that they are predicting will play important roles in the current seller’s market. As usual, the information and their analysis was very revealing.

But, what really leaped out at me was this quote from one of the managing directors with the equity firm, Saratoga Partners:

“We look at 700 deals a year and we close on about 15. Using technology is imperative,” says Joseph Burkhart, a managing director with Saratoga Partners. “I turn down 99 percent of the deals I see.”

If you are an owner of a privately held company, this quote has huge implications for you once you make the decision to pursue investors/buyers for your business.

Keep in mind that professional buyers like Saratoga are not unique in terms of the number of targets they look at annually. You have about 5 minutes to grab the attention of these folks so your documentation needs to not only tell an appealing (and accurate) story, it also has to be in a format that these buyers like to see it in.

How will an M&A Advisor help attract buyers for your business?

This is one of the key strengths that an experienced M&A advisory firm like Generational Equity brings to every client engagement. Several members of our deal team have been successfully closing middle market transactions for decades.

Our M&A advisors are in constant communication with professional buyers. Because we have earned their trust over time, they have confidence that when we approach them with a possible transaction, it is a “real” deal (a.k.a. a dedicated seller). This is essential in securing the optimal deal when selling a business.

They have this confidence not just because they trust the dealmaker based on years of professional dealings; they know that our process is designed to weed out unprepared sellers.

How does the Generational Equity process accomplish this?

Because of two key steps we require every client to go through.  First, we charge a commitment fee. In theory, this fee is supposed to cover our initial costs of preparing a company for sale. In reality, in most cases it does not as we invest significant time and effort in the next key part of our process: the business valuation.

This 30- to 90-day step accomplishes two things – it helps the business owner understand what his/her Business Enterprise Value is at that point in time. And, just as importantly, it provides the client with key business areas that he or she can focus on to enhance the businesses value AND improve its sale-ability to buyers.

If you choose not to hire an M&A advisor or firm to represent you, and you approach professional buyers with no idea what your company is worth (and you have not done the analysis to determine key areas you need to focus on to improve your company), you will be at a significant disadvantage.

Even if you can get buyers to talk to you, they will most likely make an offer for your business that will be at a significant discount from its true value. There is nothing illegal or immoral in them doing this. Their goal is to earn the highest return possible when they invest in a company. Driving the valuation down simply makes good business sense for them (but not for you).

So, getting through all the noise of 700 (or more) opportunities that your buyers are going to look at is vital. The best way to do this is to have a professional M&A advisor by your side that over his/her career has closed dozens and dozens of transactions, as ours have.

If you have not hired a firm to work with you and if you have never created an exit plan, I recommend that you reach out to us and see if attending one of our executive M&A conferences would make sense.

The investment of a few hours of your time will pay off when you eventually do approach buyers. And while there, you can chat one-on-one with our representatives about the services we provide to help sell your business.

To find out more, call us at 972-232-1121 or visit the following links:

By Carl Doerksen, Director of Corporate Development at Generational Equity.

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