The most expensive mistake in selling a business is to undersell it. A qualified intermediary can add significant value to a transaction simply by virtue of experience.
Putting this into context, buyers are fit for transactions, they conclude deals in multiple jurisdictions and often have dedicated teams that focus exclusively on mergers and acquisitions. Business owners may typically have done a transaction or even two in their careers, but most often they have not yet sold a business and can benefit enormously by having a seasoned sell-side advisor on their team.
Whilst there are very broad categories of advisor; no two intermediaries are the same. In selecting an advisor there are some fundamental questions to ask that will help establish whether the firm will meet your specific needs and requirements.
1. Who will manage my deal?
Someone ultimately has to do the work and it is uncommon in the more developed advisory firms that the person engaging you in the mandate will be the one to manage your transaction. The different stages of a transaction require different skills and one individual can't be competent in all aspects of the M&A process. Meet the team, understand their roles, experience and track record with a view to knowing:
- Who will source potential buyers and vet them?
- Who will gather, collate and organise the complete history of the business?
- Who will be analysing the financials?
- Who will negotiate the deal?
- Who is going to keep me emotionally in check during this gruelling process?
- Who will be focusing on the deal timeline?
Does this team have the firepower to get the job done and have you visited their offices and met the team?
2. What other services does the firm offer?
How important a component of the firm's activities is M&A? Balance sheet will always trump advisory. The mindset of an investor is very different to that of a seller as is their approach to value and valuation. If private equity is a component of the firm's services then your business needs to fall outside of the scope of their own fund's mandate. Similarly, long-term wealth management generated by such a liquidity event should never be more important than doing the best deal.
Whilst it is possible to be good at many things; it is rare that a company's best salesperson would perform well as a buyer in the procurement department. Equally, advisors are typically better suited to working for buyers or sellers, rarely both as there is always a risk of conflicts of interest. As a seller, a strong and exclusively sell-side advisor is an important consideration.
3. Is my key contact capable of advising on multiple exit options?
There are a plethora of alternate forms a transaction may take, ranging from outright or partial sales, management, trade or financial buy-outs, as well as local or cross border deals. At the outset, an open mind is a key component to any transaction and an advisor with experience across multiple transaction types is able to add considerable value. "Don't get so hung up on what you think you want that you ignore something better."
4. What are the typical deal sizes and the range of deal sizes a firm has completed?
Often when pitching for major transactions the question is posed about the biggest deals a team has completed. Whilst important to have a track record in major transactions the correct question is often around how many small deals a firm may have concluded. Smaller deals are infinitely more difficult, the costs of transacting are the same for the buyer in large and small deals, and the volume of buyers pursuing larger transactions is greater, the ability to get small deals "over the line" can be the true test of an advisor's skill.5. Sector Specialisation?
You are required to be an expert in your business and in the same way your advisor needs to be an expert in theirs. Whilst an understanding of your business, and an appreciation of the value drivers in your sector is key, the risk with sector specialisation lies in the advisor's reliance on maintaining relationships with a small pool of buyers for multiple transactions which has the potential to undermine their role as your representative in a single transaction.
6. Is the process used to find my acquirer comprehensive enough?
What kind of approach will your advisor take to secure the best possible deal? Do they rely heavily on an existing network of local acquirers or investors with whom they have had previous dealings or are they prepared to invest in research, and the often expensive data bureaus, that provide the inside track on deals that have been completed in territories other than your own? Will your business be openly advertised with a thin veneer of confidentiality or will the team handling your transaction knock on doors of the businesses who are unlikely to be aware of just what an opportunity your company presents? The right advisor will be prepared to engage with prospects not only in close proximity to you but also those within appropriate verticals and those adjacent to you in the supply chain. The process should unearth the best possible acquirer and not simply the closest available prospect with funds.
T: +27 (0) 21 300 2055
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $6B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from offices across the world, have assisted hundreds of owners with achieving their personal objectives and ensuring the continued growth of their businesses.