How to choose the right M&A advisor for your acquisition?
Mergers and acquisitions come with many challenges that make the whole process difficult for the business owner.
New entrepreneurs and business owners often hesitate when it comes to acquisitions of their businesses due to the obstacles posed by the process.
Since most don’t go through acquisitions every day, it is natural to worry about losing value during the deal.
An experienced buyer can potentially negotiate a deal that can tip the balance in their favor, leaving you at a disadvantage.
One way to avoid getting tricked during the merger or acquisition process is to involve an experienced M&A advisor in your deals.
If you are wondering how you can choose the right M&A advisor, this article is for you, so keep reading.
Remember that mastering the storytelling side and how you are positioning your business is critical when it comes to engaging and speeding up the process. This is done via your acquisition memorandum. This is super important to reach a successful acquisition. For a winning acquisition, memorandum template take a look at the one I recently covered (see it here) or unlock the acquisition memorandum template directly below.
Here is the content that we will cover in this post. Let’s get started.
- 1. What does an M&A advisor do?
- 2. M&A strategy development
- 3. Developing marketing materials
- 4. Buyer and target company valuation
- 5. Help approach buyers and sellers
- 6. Handling negotiations
- 7. Closing the deal on your behalf
- 8. Raising capital
- 9. Company restructuring
- 10. Tips for choosing the right M&A advisor for your acquisition
- 11. Chose an advisor with a solid reputation
- 12. Make sure they are a good fit for you
- 13. Understand their fee structure
- 14. Retainer fee
- 15. Success fee
- 16. Make sure the advisor is transparent
- 17. Your M&A advisor should be qualified
- 18. Time in the industry
- 19. Conclusion
What does an M&A advisor do?
If you are entering an acquisition deal for the first time, you would want to know how an M&A advisor can help.
When you are working with the right M&A advisor, you can rest assured that they will work to carve out a deal in your best interest.
Having an experienced M&A advisor by your side puts you in a solid position to come out on top during a deal.
M&A advisors offer a host of services to business owners to facilitate their buying or selling process.
Some key things an M&A advisor can do for you include:
M&A strategy development
Acquisitions are a means to achieve a certain objective.
They are done to eliminate competition, improve a company’s financial situation, fuel the mission, or exit.
Since the goal is to get maximum value out of the deal, it is essential to have a framework to make sure you meet your goals.
An M&A advisor can help you create a strategy for your acquisition that has the fundamental purpose of assisting you to reach your goals.
Advisors can help you carve out a path by developing an M&A strategy that ensures a favorable outcome for your company.
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Developing marketing materials
Acquisition marketing requires materials such as teasers, pitch decks, forecasts, memorandums, and more.
An M&A advisor can assist with the development of all the marketing materials and marketing strategies.
Carefully crafted marketing material and strategy can help you attract the right businesses that are interested in a deal.
As well as maximizing the value for that specific buyer.
Buyer and target company valuation
As mentioned earlier, business owners’ biggest fear when acquiring or selling their business is often getting an unfair deal.
That is where buyer and target company valuation services offered by M&A advisors come in.
M&A advisory firms can help you come up with an accurate value for the firm you are planning to acquire.
At the same time, they can help you evaluate your own firm, so you don’t end up with the short end of the deal.
For this reason, you should know how to choose the right MA advisor for your acquisition.
Help approach buyers and sellers
Finding buyers and sellers for acquisitions can be tricky.
Since merger and acquisition advisors have connections in various industries, they can approach buyers and sellers on your behalf.
More importantly, they can help you reach the right buyers and sellers that are genuinely interested in expanding and growing just like you.
Negotiations are a crucial part of the acquisition process.
The scale of negotiations gets bigger, as the size of the companies involved in the deal increases.
High-stakes negotiations require involving experts and M&A advisors to handle all the negotiations to ensure you get a good deal.
Closing the deal on your behalf
Closing an acquisition deal requires a lot of paperwork and due diligence.
The paperwork is necessary to make the sale or merger official. And you also have to make sure everything takes place as per the deal was laid out.
M&A advisors can be by your side through the closing to make sure both parties abide by the agreed-upon terms of the deal.
Since the advisor will be working on your behalf, they can protect your interests and make sure the deal closes in your favor.
Capital levels are especially important to consider when you are going for a merger with another party.
An M&A advisor can help you raise capital for the merger or acquisition, so you don’t fall short when it comes to closing.
If you are acquiring a new firm, you will need help to rearrange the newly acquired firm to improve its profitability.
An M&A advisor can help you carve out a new company structure that will help you improve its efficiency.
Keep in mind that in fundraising or acquisitions, storytelling is everything. In this regard for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Tips for choosing the right M&A advisor for your acquisition
Now that you know what an M&A advisor can do for your business during your acquisition process, you are ready to move on to the next step.
If you manage to hire a qualified M&A advisor, you are already on the path to a successful acquisition deal.
With that said, knowing how to choose the right M&A advisor for your acquisition is easier said than done.
Here are some tips that will make picking the right advisor a lot easier:
Chose an advisor with a solid reputation
Reputation matters a lot in the corporate world, so it goes without saying that you should only work with reputed M&A advisors.
A reputable advisor is going to have referrals within your specific industry, and the referrals should be verifiable.
If the references provided by the M&A advisor aren’t verifiable, it can be a red flag.
You should always speak to a few businesses that the advisor has previously worked with to determine how satisfied they were with the services.
At the same time, it is crucial to find out who the partners of the M&A advisors are and how is their reputation in the industry.
M&A advisors work with banks, business lawyers, and other professionals. Verifying their credibility is as important as the reputation of the advisory firm itself.
Make sure they are a good fit for you
As we mentioned earlier, you should preferably work with M&A advisors with a solid reputation within your respective industry.
Each industry has its own set of metrics and mechanics that drive businesses to acquire another company.
There are M&A advisors that specialize in assisting with acquisitions in a specific industry.
These may include healthcare, technology, financial services, and retail.
So it is not difficult to find an advisor with a solid reputation within your industry.
If you want to be even more specific, you can look for advisors that work with businesses similar in size to your own.
The technicalities of acquisition can change significantly when you factor in the size of a business.
If you are a small business, make sure you are working with an advisor who has previously helped small businesses with their acquisitions.
The same is true if you are a medium or a large company.
To sum it all up your goal should be to find an advisor that understands your company’s situation.
They should have the knowledge to overcome the obstacles that might arise during the acquisition.
Do the necessary research on how to choose the right MA advisor for your acquisition.
The most important aspect of an acquisition is knowing how to value your company. As a successful M&A advisor, myself, I have identified several aspects that are crucial for successful outcomes. Check out this video I have created explaining how to evaluate the startup.
Understand their fee structure
M&A advisor’s fee can be charged as a combination of retainer fee or success fee. Here are the differences between the two types of fees:
The retainer fee is also referred to as a work fee, and it is charged either as a flat amount or a monthly fee.
This fee usually goes up with the size of the transaction involved in the acquisition.
The flat rate of the retainer fee may hover around $50,000. And the monthly installments of the retainer fee typically range between $3,000 to $15,000 per month.
A success fee is a percentage of the completed transaction paid at the deal’s success.
The success fee can be as high as 12% or as low as 6% on smaller deals.
While larger acquisition deals usually have a success fee of around 1.5% of the total transaction.
When you are choosing an M&A advisor, make sure to consider the amount of retainer fee and the success fee being charged by the advisor.
An advisor that is charging a high retainer fee but a low success fee may be less motivated to actually close the deal.
On the other hand, advisors that charge a significant success fee may be more motivated and confident in getting it done, and quickly.
Ideally, you should look for a firm that has a decent success rate.
That way, you can rest assured that you will only be paying the advisor in the event where your deal is successful.
Another thing you should make sure of is that the advisor doesn’t charge any hidden fees. And that you have the option to turn down any offers presented by them.
Work out the expected costs when figuring out how to choose the right MA advisor for your acquisition.
Make sure the advisor is transparent
Transparency is an important part of an acquisition deal.
When you are working with an M&A advisor for your acquisition process, you should rely on them for accurate information about every step of the process.
Acquisitions take time, and you may have to wait for some time before you can find a successful deal.
However, as long as your advisor is clear about different stages and what you can expect next, the whole process becomes simpler.
When you are interviewing advisors, make sure to ask them about:
- The length of the contract
- Whether the services offered by the M&A advisor are bundled or not
- Do they allow fee deductions in case you don’t need help with certain aspects of the acquisition
- What level of involvement is expected on both sides
A reputable M&A advisor should be able to answer all of these questions prior to starting the acquisition process to keep things transparent.
Your M&A advisor should be qualified
The most important tip we can give you is to always choose a qualified advisor.
A background in finance and law is definitely a bonus for an M&A advisor.
Acquisitions involve understanding the financial performance of both companies involved in an acquisition deal.
For this reason, a sound knowledge of finance can make them an ideal candidate.
While the legal side will help you navigate all of the potential clauses involved.
Time in the industry
While you can easily find hundreds of M&A advisors by a simple Google search, you should prefer those that have spent some time in the industry.
M&A advisors are helpful regardless of the size of a business.
With a wide range of firms and investment banks offering assistance for acquisitions, choosing the right partner for your business can get difficult.
There is no shortage of good M&A advisors in almost every industry that will handle each and every aspect of the acquisition.
But, it is best to remain involved with the process.
Not only will you be able to carve out a favorable deal for yourself by being involved with the advisor.
But you will also learn valuable knowledge and skills that will help you in the future.
As long as you are following the tips provided in this article you should know how to find the right M&A advisor for your acquisition.
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