A Guide to a Mergers and Acquisitions Advisory Firm’s Role in a Business Sale
When an entrepreneur decides to sell a business, it’s usually a bad idea to jump into M&A (mergers and acquisitions) without the help of a knowledgeable, experienced mergers and acquisitions advisory firm. A business owner can prepare for the sale process by retaining an advisor, and, as long as that person is qualified for the job, the return on investment is often high for the business seller. The difficulty of selling a business while trying to run it, and the disadvantages of going through the M&A process and leaving empty-handed, are some of the biggest reasons to hire an advisor. Read on to learn more about advisors’ fee structures, the vetting process, and role in business sales.
Fees For M&A Advisors
An advisor typically sees their biggest payout when a deal is closed. Known as a success fee, this payout is often based on the transaction’s final price. Success fees are usually negotiated by the advisor and the business owner when the relationship is formalized. These fees usually depend on the business’s final sale price. Since there are many competing M&A advisory firms, investment banks, and business brokers, fees are usually standard in the industry. If the contract calls for a percentage of the sale price, the advisor is motivated to maximize the transaction’s value for the business owner. Along with success fees, many established M&A advisors require upfront or monthly retainer fees, which assure the seller’s commitment to the process. At CGK Business Sales, we do not require upfront fees or monthly retainer fees. We believe that your success is our success. We are only paid when the business sells.
Vetting a Mergers and Acquisitions Advisor
Business owners should carefully examine a potential advisor’s competence, experience, and reputation before signing a letter of engagement. Sellers should look for a positive history of past deals, advanced education and industry credentials, testimonials from past clients, and endorsements from other industry professionals. When advisors have worked in similar industries, they may be more acquainted with potential buyers. At CGK Business Sales, we have done deals in nearly every industry, usually multiple times.
The Advisor’s Role in Preparing a Company for Sale
A considerable amount of work goes into preparing the target’s marketing materials before a sales pitch is made, and adequate financial information is crucial. Many mergers and acquisitions advisory experts will insist that their clients have the company’s financial statements adjusted and, if the company is large enough, a quality of earnings report ordered. All advisors want to value the company properly before the process begins, often helping clients understand how their balance sheets and income statements are connected to their cash flow statements. Beyond financial information, an M&A advisor should ensure that working capital and physical materials, such as inventory and property, plant, and equipment are at proper levels. Getting an idea of supplier and customer concentration levels is another important task, as potential buyers will want some level of assurance that current customers will stay as the company changes hands.
Getting the Company to Market
During the most prominent part of the process, the mergers and acquisitions advisory firm puts the company on the market and chooses a method that maximizes the seller’s chances of success. In many cases, this involves contacting select, potential buyers ahead of time, to gauge their interest. Advisors should manage the process efficiently by qualifying buyers based on seriousness, expertise, and available capital. Depending on the target company’s time requirements and other features, an advisor may decide to show the business to a limited number of potential buyers at one time. No two companies are the same, and an expert advisor will treat every sale differently.
Finalizing the Deal
Finally, selling clients should be confident that an M&A advisor can help them negotiate terms, including the working capital included, escrows, asset allocation (if it is an asset deal), and other important issues. If contingent payments, non-compete clauses, or consulting contracts are needed, an advisor can help a seller formalize these components as well. Call your nearest CGK Business Sales branch or confidentially email us below, using this form.