I remember when we decided to exit from our software company. We got several referrals for an M&A advisor and also called some that were well-known in our industry. At that time, there weren’t any lower middle market specific M&A firms, so we had to focus on investment banks. Most of them only asked us about our financials and couldn’t care less about our product, our innovation or our services. It was a bad experience to have after spending 16 years building a great business and having none of that matter to these people.
Fast forward, I am now an M&A advisor for the lower middle market. I chose this specifically because I love small, fast-paced companies that know how to innovate. And, I don’t want any of them to be stuck with an M&A advisor who doesn’t try to understand the sum of the business that they built.
If your company is at an inflection point or has met your strategic goals for exit, then it is time to start thinking about sell-side M&A representation. The landscape has changed and there are a lot more options now than when I wanted to sell my business. Specifically, independent M&A advisors are growing at a fast pace and are more available as an option.
Depending on your size, you may have a choice between independent representation and an investment bank. If your company is still small, you may want to concentrate solely on independent representatives. Here are some considerations as you embark on this decision.
Selecting an M&A Advisor
- Focus: During your introductions and the selling process, is the M&A advisor engaged with you? Do they show up to meetings on time and focus on you? I’ve seen M&A advisors on the other side barely listening to their potential client or emailing/texting during a discovery call. If this happens, they are likely showing how you will be treated after you sign their contract.
- Team: Who is actually working on your account? Some M&A firms have a more experienced person who gets the account, then hands it off to a junior team member to execute. It is important to ask if the person you are talking to is actually executing your deal and how they intend to be successful.
- Process: This is a big deal to me. I am very process-oriented and use my process diagrams to engage with prospective customers about all that goes into a competitive M&A process; what I will be doing and when; and what the customer needs to do and when. They should prepare you early for phases like due diligence and the walkthrough of your office. If your M&A advisor doesn’t have a process, this is a bad sign.
- Fee and compensation structure: One of the signs that you may be in for a bad experience is when the M&A advisor asks for a retainer that is too high and/or a fee that is too high. That can be a sign that either they make their money primarily from retainers or they think your account is going to be difficult and want to ensure they get paid as much as possible upfront. This is a warning sign. A retainer is industry standard, but the largest portion of their compensation should come as success-fee at close.
- Relationship comfort level: It is critical that you feel comfortable with your M&A advisor. You will be sharing very intimate details about your company and, quite frankly, yourself. If your M&A advisor doesn’t ask you about what you want out of the exit, they aren’t thinking about you. Is this just a transaction to them or are they working to build a relationship with you?
- Differentiators: Just like your company, why should your M&A advisor be any different? They are going to ask you all about your differentiators and market position, so you should ask the same questions. Knowing how your advisor positions themselves will help you to know if your company is a good match.
- Options: Does your M&A advisor work with you to explain all the different options available to you? For instance, you may want to sell to a strategic acquirer or competitor and become part of their organization. Or, you may want to sell and go to Hawaii to live on the beach. Alternatively, you can sell a majority stake to an institutional investor and become part of a larger platform, with a double exit in a few years. All of these options should be discussed as well as an expected valuation and your interest in equity vs. cash deal structures.
- Experience: What is the M&A advisor’s experience in your industry? Do they have existing contacts or will they be using your deal to build contacts for themselves? I don’t have a traditional investment banking background and I don’t think that is required. However, I have a lot of experience on the buy side; in post M&A integration; and representing sellers. It is important to understand the unique skills that your advisor will bring to the table on your behalf.
The good news is that there are many independent M&A advisors now that can be a better match for your company than a big investment bank. My approach is a combination of process-oriented and relationship driven. I have built a network of other independent advisors and we use the power of our collective networks to open doors and make introductions. It’s a much more modern approach to M&A that works. I also believe that your exit is an end result of good strategy executed well. I offer strategy consultation and exit readiness to prepare companies to be acquired. It can take time and I like to work with companies early to ensure that the exit process is fast, easy and results in the highest valuation for my clients.
Contact me today if you are considering exit anytime in the next 24 months. We can start preparing your company for a successful outcome.