Business owners who are interested in pursuing a sale transaction often find the process of selecting an advisor to be challenging due to several factors. One of the most common misconceptions when hiring an advisor is the belief that there are certain sell-side advisors who have access to inconspicuous buyers, who are unavailable to the wider market, that will be able to deliver excess value for their business. This belief tends to direct a business owner’s attention and efforts towards vetting an advisor’s list of buyer contacts instead of the strength of the advisor’s team and the demonstrated discipline of their process through execution.

The buyer market is very efficient: every sell-side advisor has relationships with certain financial and strategic buyers. Buyers and intermediaries communicate and network frequently. Despite claims to the contrary by some of the less scrupulous participants in the market, there is no M&A advisory firm with access to a secret, unknown list of financial or strategic buyers who will pay an extra 2-3x EBITDA more for a business.

When selecting an advisor for what might be the most important process of your (and your family’s) life, look to find an advisor who promises much more than the initial “ability to find” the right buyer

M&A transactions and the 80/20 rule

With regard to the transaction work of the sell-side advisor, it can frequently be said that 20% of success is attributable to finding an interested, qualified and capable buyer, while the remaining 80% is the result of executing the deal on the target timeline with the target economics (holding the buyer to the terms as initially proposed). While the first steps in a sale process are indeed to 1) identify and 2) solicit bids from the best-positioned financial/strategic partners, it is the subsequent steps involved, those leading to closing, that are the most challenging and determinative.

Process management is not just adherence to a timeline. When a buyer is selected, having submitted an initial proposal with compelling terms, that buyer will inevitably seek to leverage any information it learns over the course of its confirmatory diligence process to re-negotiate the transaction to its advantage. Any decline in company financial performance, every customer lost, and any other data point that can be interpreted in a negative light will be used as evidence in this effort to renegotiate – and every additional day that goes by offers new opportunities for them to find fresh ammunition for their efforts. Further, the buyer at this stage of diligence leverages the fact that in the private M&A market, an incomplete/abandoned process can negatively impact value on a subsequent marketing of the business; hard questions will be raised by future prospective buyers as to the reasons the primary bidder walked from the deal.

Instead of investing time trying to interview M&A advisors based principally on their specific knowledge of a particular market’s buyer universe, business owners benefit to a greater extent by evaluating a firm’s demonstrated ability to organize and execute a disciplined transaction process. This includes an understanding of the composition and depth of the firm’s deal professionals, including the average years of experience combined with the average years working together as a team, and the output of their achievements: the size (often an important proxy for deal complexity) and volume of transactions successfully executed.

If you’re an owner considering a sale

Many different motivations can come into play when deciding to sell a business and determining the best exit strategy can be a complex and stressful challenge. At ButcherJoseph, we help owners work through the process and ensure they understand the full range of options available.

In fact, before starting an engagement, we provide prospective clients with a complimentary feasibility analysis to help sellers learn more about the structure and the results for shareholders and the potential outcome for management and employees if the owner were to sell their business to private equity, a strategic buyer, or to their employees. As they weigh their options, this complimentary analysis will help owners see the benefits associated with each transaction type, as well as our insights into current market dynamics.