Why You Need An M&A Advisor

By Generational Equity


We often get this question in our Growth and Exit planning conferences: Why do I need to hire an M&A advisor?

The answer is you don’t!

Hundreds of businesses are sold every year by business owners without the advice of professionals. But, as we have seen time and time again, most of these entrepreneurs sacrifice a significant return on their investment because they make two huge mistakes:

  • They don’t accurately recast their financials
  • They don’t approach the right set of buyers

Each of these can be disastrous on its own, but most folks make both mistakes. This is not a big deal if you are in a fire sale and must dispose of your assets quickly due to health issues, divorce, partner complications, etc. But these are not recommended motivations if you want the highest ROI possible. So, let’s look at both so you can avoid making them.

Financial Accuracy or NOT?

Sadly, most business owners don’t realize that their historical financials do not reflect the true profitability of the company. I am not impugning or disparaging your CPA. In reality, if they have done their job correctly over the years, they have saved you a ton in taxes, and done so legally.

But, when you start to ponder an exit, you must realize that all those savings you have enjoyed need to be added back in. Trust me, savvy buyers will take your historic financials and will “recast” them without you knowing it. They will then offer you an amount for your company based on your non-recast financials which, in most cases, will radically undervalue your business. 

Please don’t make this first mistake. If you don’t hire an M&A advisor, then have a trained CPA who has done M&A work recast your historic income statements and balance sheets (at least 3 years back). You will most likely be shocked by what you see!

Buyers Are NOT All Equal!

When we have our initial meetings with clients, we always ask, “Who do you think would be the optimal buyer for your company?” The answer is invariably the same and usually wrong:

My competitor down the street!

And the follow-up is always this: Every year at our annual industry trade show, they hand me their business card with an amount written on the back. Then with a wink they say, “Here you go pal, all cash,” (with another wink). Oddly those amounts on the back have gotten smaller and smaller over the years…

If you take nothing more from this insight, then make sure you remember this: Do not limit your buyer list to your competitors. Now ultimately, your buyer may be a competitor. But if you don’t use a limited auction process with the support and guidance of a skilled M&A firm, you most likely will not get top dollar for your business.

The business genius Peter Drucker is reported to have famously once said, “The buyer rarely buys what the seller thinks he/she is selling.”

That thought is so profound, you really need to chew on it for a bit. Before your head hits the pillow tonight, ask yourself, “Why would a buyer want my business? What intangible assets does it have that would attract premium buyers?”

Let your subconscious mull that over for a few hours. When you wake up you should be surprised to learn that your business is worth far more to specific, active, buyers than simply one competitor (or Larry from your country club who has bought and sold “hundreds of businesses like yours”).

This is a key reason you need a professional M&A firm like Generational in your corner. Our deal teams are extremely skilled in creating a buyer list that will attract the most interest from the most qualified pool of buyers. Here is some proof of our skill in doing so:

In closing, please don’t make the two mistakes we have discussed. Don’t save money and sacrifice it on the altar of lost rewards. Be as savvy as a buyer and aggressively pursue the accurate valuation of your company AND a list of the best buyers for it. Your financial legacy depends on it.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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