Selling Your Business—Do I Need an M&A Advisor on my Team?

You’ve spent years building your business, and you’re starting to imagine what your future holds. For many owners, the next step may be the most important: selling the business. 

Some business owners may find themselves with potential buyers reaching out unsolicited, while others may not know where to start a sale process. Regardless of where you are along the sale continuum, it is most likely your first time selling a company, and if you are not prepared, the likelihood of getting the best deal for years of hard work is lower than you might think. 

We often get the question from business owners—is an M&A advisor/investment banker really necessary? What value do they bring to the table? Can’t I do this myself?  

Before we answer those questions, consider that 80% of businesses that go to market never sell. There are several reasons, but an overwhelming factor is the lack of planning. Many of our clients who come to us after a failed M&A experience now recognize the depth of knowledge and focus needed to ensure a successful transaction.  

Even for those who believe they have a willing and able buyer, the “game” has just begun. After achieving a letter of intent (LOI), the process will likely require hundreds of hours of diligence, negotiation, and documentation to ensure a successful close, regardless of transaction size. 

Back to the original question. Is an M&A advisor really necessary? It’s a reasonable question, but it is not as straightforward as you may think. While an owner who has sold a business before or is focused on an internal transfer may navigate the process with the help of their CPA and attorney, most business owners will benefit from also engaging an experienced M&A advisor.  

Why? Hiring an M&A advisor increases the likelihood of maximizing price and terms and improves the probability of closing the transaction.  

Specifically, consider some of the primary benefits of an experienced M&A advisor: 

• Planning: In an M&A process, preparation creates value. An M&A advisor will work with the seller to understand their objectives and key business characteristics, creating a marketing strategy that best positions the company for a successful sale process. This includes preparing marketing materials, normalized historical results, and a credible financial forecast, as well as gathering diligence materials before contacting buyers. An M&A advisor will also help identify and vet potential acquirers. 
• Process Structure: Having a third party ‘run’ a transaction process helps to create a competitive dynamic amongst multiple potential suitors. A well-designed process with structure and bid deadlines overseen by professionals creates competitive tension that maximizes values. Having multiple parties at the table also increases the likelihood of getting a deal done, and the fear of missing out (FOMO) this creates is real! 
• Execution: An M&A advisor takes on the primary role of executing the sale process, freeing up the management team to continue running the business. A sale process is time-consuming, and the business must continue to perform well to maximize value. If an advisor is not involved, it can be overwhelming for management to run an M&A process and business operations, as buyer diligence and discussions can monopolize their time. 
• Negotiating Dynamics: Having a separation between the buyer and seller when contacting bidders and negotiating a transaction allows the “principals” on each side to maintain a positive relationship while advisors work through any difficult issues, including price and deal term discussions. 

But what about the fees? One of the largest misconceptions is that selling your company on your own will save you money. Can this happen? Sure, but usually, it costs the seller much more than they may realize.  

Consider an owner who decides to forego an M&A advisor to save on fees, which typically range from 2% to 5% of the transaction value for lower middle market sales. Beyond the value, M&A expertise can provide in planning and executing the sale process, let’s look at several key negotiated transaction items that, if not managed, significantly impact the expected valuation. 

The impact on the seller’s net proceeds can quickly add up. Just the items above can easily exceed $1 million. Viewed differently, an experienced M&A advisor can more than pay for themselves in the end.  

Lastly, it’s important to point out that an M&A advisor is only one of the key advisors needed to increase the probability of a successful sale. As you plan for a future sale, other team members should include the following: 

• An attorney who specializes in mergers and acquisitions; 
• a wealth advisor to help you plan for life after your sale and keep your nest egg safe after you harvest your prized asset, the business; and 
• a tax accountant to help structure your transaction and provide the M&A advisor and wealth advisor with valuable intelligence regarding tax liabilities and structuring associated with your deal. 

The process of selling a business is an arduous and complicated one. However, with the help of a team of experienced advisors, your outcome can be the one you envisioned for yourself. 

If you have questions about transitioning your business or creating a succession plan, fill out the form below to connect with the Aldrich Capital team.