As an entrepreneur / successful management team you’ve worked tirelessly to create value for your customers. How do you know the people you pick to sell your business are going to do the same for you?
We’re fortunate that we see hundreds of successful businesses each year come to market to sell a stake in their business or raise capital. In all cases what they have in common is that the end result is:
- critical for the ongoing success of the people in the business and
- a culmination of many years of hard work and skill.
Getting it right is important.
One of the key steps in the process is making sure you have the right advisors around you to deliver your goals. You need to pick wisely.
M&A advisors – The Conductor
In the context of a share sale or raising capital there are many important advisors, but often success is defined by picking the right M&A advisor. Typically they should be able to do three things well: (i) understand what your objectives are (personal and corporate), (ii) design a process to best achieve the outcomes that match your objectives and (iii) be honest on what can be achieved, by when, with what level of preparation.
Not all advisors are created equal
There are many different types of advisor out there. They range from global investment banks to local sector specialists to boutique independent players and the large accounting firms. Each has their place in the market and a reason to exist. The one that is right for you will depend on a number of factors, some key ones we’ve summarised below.
Key factors to consider when appointing an advisor:
1 Willing to listen to your needs
An advisor needs to be able to give good advice. That starts with them getting a solid understanding of your business, personal preferences and timeframes. If an advisor hasn’t spent the time probing you on each of these areas it is unlikely they have deep enough knowledge on your sector or your business is as important to them as it should be.
2 Sector knowledge
Depending on your sector and what you want to achieve it can be critical for an advisor to have this knowledge. In other cases, not so much. The easiest way to test this out is to understand what similar businesses they have sold and whether they can quickly grasp the key drivers behind your business. Whilst most advisors can pick up new sectors quickly if you’re speaking a different language after the second meeting you should probably look elsewhere.
3 Situational experience
Some advisors are experts at raising development capital, others at IPOs. Some are focused on trade sales, others have more experience with private equity. Many advisors will have a natural bias to the type of deal they are best at. Ensure you understand all the options and the pros and cons of each route before picking an advisor with experience in the most relevant situation.
4 Typical size of deals
Ensuring your deal size is in the ‘sweet spot’ for your advisor can make or break outcomes. If you’re too small you won’t be the priority client when things get busy; too big and the team might not have the experience needed to deliver the deal you’re looking for. Do not be afraid to ask advisors for the range of deal sizes they’ve worked on in the last year / how many mandates they have on today / what capacity they have to take on new deals.
5 Delivery team
It’s not just the deal lead that you’re hiring but their team. Be sure to get to know them and who will be there to support through the journey. Having the right ‘junior team’ can make all the difference in the middle of a sales process.
Ensuring the fees reward the outcome that you’re targeting is essential. You typically don’t want your advisor to get rich from ‘preparing for sale’ but you should be happy to share the proceeds if they outperform your expectations on getting a result. The best way to benchmark is to get a few proposals. Ask the advisors to give you different options on the fee structures they would consider…you’ll be surprised how inventive they can be.
This is one of the most important decisions of your life. Take advisors up on them. And ask for them from the last two / three clients that the advisor has been working with.
How do I find an advisor in the first place?
There are a few ways you hunt out the right advisor for you. Good examples of leads include: (i) you may have a friend who sold a business of a similar scale, (ii) there may be another deal in the market you’ve admired, (iii) you may trust your existing advisors (lawyers, accountants etc to make introductions). Either way feel free to meet a few. Without context you won’t have the confidence to know you’ve made the right decision.
Once you’ve met an advisor or two that fits the bill you are well within your right to ask them to ‘pitch’ to you. Whilst the ruin of many young corporate finance executives evenings…if an advisor wants your business they will happily prepare a pitch deck. This will typically summarise: (i) why they think your business is attractive, (ii) the options available to you, (iii) how valuable / how much money you can raise, (iv) how you should structure a process and (v) how much it will cost. The quality and thought in this work is often indicative of how much they want your business, how well they understand your needs and how they are placed to deliver you the outcome you want.
Whilst the M&A advisor acts as the conductor of a sale process, they cannot do it without an array of supporting professionals alongside them. Quite how many and who you need will vary on size and complexity of your business. Irrespective, the best advisor won’t tell you they can do it all for you…they simply can’t. You’ll need their support in ensuring you’ve got the right legal, accounting / tax, technical, insurance advisors etc etc needed to get a deal over the line.
Can we help?
We’re well placed to give views on quality advisors. There are lots out there and we try to build deep and trusting relationships with them. Anyone at Livingbridge would be happy to recommend advisors they think could be the right fit for you.