No owner wants to spend more money than they have to. Perhaps that’s why so many owners ignore the inherent value of M&A advisory firms, opting instead to do it all on their own.
That can be a major mistake. The proof is in: M&A advisors increase final sale value, making them a sound investment.
Research on M&A Advisors
A study, “Does Hiring M&A Advisors Matter for Private Sellers?” included a sample of 4,468 M&A transactions between 1980 and 2012 to assess the role of hiring M&A advisors in final sale price. Regardless of deal size, working with an M&A advisor increased sale value. This suggests that payment to an M&A advisor is an investment that grows your business and the final sale price.
How M&A Advisors Increase Business Valuations
So how can a single advisor add so much value to a transaction? M&A advisors drive value in a few different ways:
Creating competition
To get the highest price, you need to create a competitive bidding environment. M&A advisors can smoothly run this process, and use a number of strategies to make the bidding process more competitive. They also have lower search costs than their clients, and their expertise helps them anticipate the likely outcome with a particular buyer.
In some cases, an M&A advisor may even be able to create the illusion of competition when there’s just one bidder. The mere existence of an advisor suggests to a buyer that there are several bids in play, and can drive the price higher.
Supporting private transactions
Many private business owners worry that their businesses are not sufficiently large to warrant an advisory team. The reality is that these are the businesses that stand to benefit the most from the involvement of an advisor. This is because the advisor can level the playing field, ensuring that the seller has a team that’s just as knowledgeable as the buyer’s.
Public companies tend to receive more bids. This increases competition and drives a higher price. The right M&A advisor can help remedy this, while serving as a counterbalance to asymmetries in M&A expertise.
Other benefits
Beyond merely increasing value, the right advisor can evaluate the fitness of a buyer to take over the company, identify potential strategic advisors, oversee the negotiation process, and save owners significant time. When you’re selling a company, time is money because time spent on the M&A process is time not spent running the business. So a time-saving advisor lowers stress and frees you to focus on running your company.
The right advisor may help in other ways, too. They can help with identifying shortcomings in the way the business is run. Or in a family-owned business, they can help deliver bad news to family members who hope to take over the business. They can explore alternative sale options, such as a management buyout or employee share ownership plan. They also help you divorce emotions from the process, making the M&A journey less traumatic for everyone involved.