Why Should I Hire an M&A Advisory Firm?

By Generational Equity


This is a legitimate question that every business owner should consider. The reality is most business owners are experts at running their companies. They have been growing a vibrant business for years and are usually gifted entrepreneurs. However, since most only exit one business in their entire lives, they are relative novices when it comes to actually finding and closing a deal with an optimal buyer.

Unfortunately, far too few realize how complex the exit process is and how much can truly go wrong along the way.

Recently our friends at Axial released a report that examined some of the key reasons why business owners should make the investment in hiring an M&A advisor. Here are just a few of the statistics they talked about in the article:

  • A 2016 study asked CEOs who had recently sold their businesses with the help of an investment banker whether their advisor added value. For a full 100% of respondents, the answer was yes, with 69% reporting a “significant” impact.
  • Eighty-four percent of the owners achieved a final sale price equal to or higher than the initial estimate provided by the advisor.
  • With these kinds of outcomes, one would think hiring an advisor would be a no-brainer. But many would-be sellers are skeptical of the cost of bringing in outside help. Part of the problem is that the specific value-add of an advisor can be opaque until you actually start working with him or her.

The end of the last bullet point above summarizes the situation clearly. Until you actually get mired in the 9- to 18-month process it takes to close a deal for your company do you realize just how valuable an M&A advisory firm can be. Here is some insight from a few business owners just like you on the importance of good M&A advice and counseling:

The theme with these (and with all of our clients post close is the same): The M&A process is far more complex, time consuming, and difficult than ever imagined. Axial breaks it down to three key reasons you should hire an M&A advisor because an experienced advisor will:

  • Identify weak links in your management team
  • Find quick ways to increase cash flow
  • Whip your financials into shape

While all three of these are important (and if time and space allowed it, I would probably come up with 10 more to add), it is the latter two that you probably are least aware of as you consider the benefits of an M&A advisory firm.

The first step for all Generational Equity clients is a thorough and complete business evaluation and valuation. And the most important component of this step is “recasting.” Unless you are a CPA or took accounting classes in college, the idea of recasting is new. But it is really one of the most important services we provide to our clients.

Recasting of your historical financials (we usually go back three years) allows us to see your company’s true profitability. Let’s face it, for years and years your accountant has taken every measure legally available to suppress the company’s true profitability to minimize your tax liability. This has worked out great for you, but if you do not recast your financials, you will be presenting your company’s true earnings erroneously.

And you will be doing so not only historically but without recasting, all your projected earnings (we do five year pro-formas for our clients) will be wrong as well, and you will potentially be leaving millions of dollars on the table when you negotiate with a buyer.

Preparing You Too

From a financial standpoint, hiring an M&A advisor is vital. And not only do we prepare the company’s financials for buyer review, we also help ensure that our clients are truly committed to the exit process. This is very important from a buyer’s perspective because the one thing all buyers lack is time. Spending 3-6 months negotiating and working through due diligence to have a seller back out at the 11th hour due to indecision regarding selling is very, very painful for buyers.

In short, why should you hire an M&A advisory firm to guide you as you consider your exit? Because not doing so could significantly impact not only the deal you eventually close, it could hurt your financial legacy, the return on your investment of blood, sweat, and tears in the company you have grown from scratch.

The major caveat to all of this simply a word of warning: When you do hire an M&A consulting firm, make sure that they have a track record of success. Generational Equity has been the leading middle-market advisor in North America for years. Don’t just take my word for it, take a look at some of our awards and accolades:

If you are curious to learn more about how your business could benefit from working with us, you should contact us about attending one of our exit planning conferences near you. We hold these to help business owners understand how to effectively plan for their exits and how to take control of their financial legacies.

And special thanks to Axial for outlining just a few benefits of hiring an M&A advisor.

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

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