Neil Patel

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What are the things to think before hiring an M&A advisor? What are some of the key questions that founders should be asking themselves before hiring an M&A advisor?

Selling and exiting a business, or even merging it with another parent company, is a big deal. Even for the majority of successful entrepreneurs, it is an event that only comes along once in a lifetime. Though, for a few, it can be the beginning of a very virtuous cycle in which they create a system for building and selling companies.

It is a significant decision. An impactful one. With many ramifications. Some understood, and many of which may not be expected. So, having a guide is important. The question is, who is the right person or firm, and when the right time to engage them is.

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    M&A

    Mergers and acquisitions are one of the common exit paths for successful startup ventures. For those that survive long enough, and develop their businesses well enough, it is more likely they will exit through M&A than going public.

    There are several structures and types of acquisitions. Ranging from asset purchases to acquihires, and all cash or stock transactions.

    In this scenario, we are talking about mergers in the sense of having your company acquired and merged with another entity. Either in a true merger and blending of companies or as part of a portfolio of brands.

    In other cases, you may merge with peer companies, or merge smaller companies into yours as a roll-up before your own M&A exit.

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    Is A M&A Advisor Right For My Business?

    Do you need a trained consultant when selling your business? If you do, what are the things to think about hiring an M&A advisor?

    You may be considering or contemplating the differences between investment banks, M&A specialists, and other aides in selling your business.

    If you just have a small business or local business, then you may not need an M&A advisor. If you just own a car wash, restaurant, or an app or website with minimal revenues, and no real IP, then you may be fine with using a business broker or listing your business or site for sale on an online platform.

    However, if you have a real startup, with big potential, and are well into the tens and hundreds of millions of dollars range, then you need professional representation and guidance. There is just so much at stake. It’s a big new learning curve that takes a lot of time and attention, with many parts to it. Especially when you need assistance with pitching investors for funding.

    Keep in mind that in fundraising, 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.

    Do I Really Want To Sell My Business?

    Are you really ready to sell and leave your business behind?

    Maybe you are. Perhaps selling your company and its assets is the only remaining option on the table. It could be that or fold it and close the doors. That may be due to a wide range of factors, from changing trends to finances and age, to other personal obligations.

    You may just be tired of this business, what it has become, or the politics that have worked their way into it. You might be already itching to do a new project.

    In many cases, companies hit the ceiling, and to really keep going and get to the next level; they are going to have to make a big move. Which often means an M&A deal.

    However, many entrepreneurs, especially first-timers, get so wrapped up in their businesses that it is very difficult to separate themselves and their egos from the identity of the company.

    Be sure that you are sure you want to sell.

    Am I Ready To Commit To Taking This Business Through An Exit?

    Deciding to sell your company isn’t a small thing. It’s not like selling a used car, or perhaps even pawning your ex-spouse’s ring. It is a long process that involves a lot of time, work, and resources.

    While it is possible to begin a new fundraising campaign and end up getting acquisition offers, you really need to commit to one direction or another and put everything into optimizing for that. Whether it is raising more capital and staying private, launching an IPO, or finding an exit through an M&A transaction.

    If you are going to do it, and do it now, mentally commit yourself to going the distance. That’s one of the most important things to think before hiring an M&A advisor.

    Is This A Good Time To Sell My Business?

    Timing can be incredibly impactful in starting and building a business. It is also a huge factor when selling a business.

    When you sell your business can be very influential in terms of your options, negotiating power, the terms available, and, of course, how much you can get for your company, and the returns.

    In some phases of the economy, capital markets, and startup ecosystem, it can be better to sell than to try and raise more money. In other cases, it can be better to hold on a little longer, if you can.

    Remember, that this is not always a short process. In rare cases, it may happen in just a couple of weeks. Though, often it could be a couple of years between positioning your company, preparing it, finding a buyer, negotiating the details, getting through the due diligence, and finally making it through the closing.

    Consider how the timeline of the markets and their cycles may play into this throughout the entirety of this transaction. As well as in terms of anything you are promising to deliver in terms of results ahead of the closing, and afterward.

    What Are The Downsides Of Not Hiring A M&A Advisor?

    If your business is at the size, stage, and complexity of transaction that you should be hiring an M&A advisor, then there can be serious consequences of not using one.

    Firstly, you have a legal and financial responsibility to other stakeholders. You must show that you are working with the best interest of the company in mind, with all diligence.

    If this is your first deal of this type and size, there are absolutely going to be things that you don’t know, and don’t even know that you don’t know.

    Even if you do know it all, then everyone can absolutely benefit from having more experienced and professional third-party representation and advice when involved in such a transaction and negotiation.

    It helps avoid expensive emotional mistakes, makes sure the fine print is right, and that you are not being taken advantage of, or are leaving too much on the table.

    Trying to go it alone, would be like taking a kid still in high school, who just started working at Mcdonald’s, and making them CEO of your company, and expecting them to ace everything, operate efficiently, and maximize the value, with no guidance on day one. It’s not going to happen, right? Not even if they have a record-high IQ, natural talent, and a lot of hustle. They are still going to make a huge mess of things before they figure it all out. There are just things that have a lot of nuances that take time to master.

    What Type Of M&A Advisor Is Right For Selling My Company?

    So, how do you choose the right professional assistance for your company? What are the things to think before hiring an M&A advisor?

    There is more than one option out there. It is about finding the best fit for your company at this time. These are some of the factors to consider.

    Values

    Do they share the same values in the process? You want a clean transaction that is not going to come back to bite you later. Do they share your same ethics, work ethic, and ways of working?

    While getting it done, and achieving the best exit possible for all is the goal, it helps if they are likable enough too. You are going to have to be working with them for a while.

    Experience

    Do they have the experience to get this done, navigate the nuances, and manage an efficient and smooth process? After all, if you are going to hire a professional, make sure you get one that is really an expert.

    It is even better if they have been through it from your perspective. Have they been a founder, and sold their own business too? It’s the only way they are going to be able to really know what it is like to be in your shoes and be able to consult you accordingly.

    Right Scale & Space

    Do they have relevant experience at your stage and scale of the company? Made even better if they’ve done some M&A deals in your space.

    An advisor who has only worked with oil and gas companies worth over $1B, may not be the ideal match for your $200M SaaS company.

    Knows The Right Buyers

    As an outcome of the above, the right advisor will know the right acquirers for your business. They will be well-networked. They know who is capable of buying, who is actively buying, and who the right companies are to work with. This is a significant part of the battle. The next is making those critical connections, and being referred to them.

    Alignment In Incentives

    Advisors, consultants, brokers, and bankers in this space have a variety of financial, fee, and compensation structures. Make sure that your offers are attractive enough for the professionals to align with your interests.

    You want them to be well compensated enough to do their best work and make you a priority. You also want to be sure they are motivated to get you the best deal, get it across the finish line, and not leave you hanging with unfavorable terms after the closing.

    Feedback From Other Clients

    Just as you should be vetting your key hires, executive management, vendors, and investors, you also want to check out the experience others have had with this advisor.

    Today, we don’t even order food from a new restaurant or spend a single night in a hotel without checking the reviews. So, there is no excuse for not doing this with something so much more important.

    Is Everyone On Board With Selling The Company?

    Are your cofounders, investors, board, and team on board with this transaction?

    If not, you might not even have the legal authority to make any decisions in this direction. Even if you still have a lot of voting control, it is going to go far smoother, more efficiently, and profitably if you are all on the same page and working together.

    Is This The Best Move For My Customers & Mission?

    You probably want to deliver great results for your investors and cofounders. You want your team to be taken care of in the transition. Though, what about your customers and the mission of your company?

    What is this acquirer’s reputation? Are they the best to continue and empower the mission? Can your advisor help with this? Or are you purely focused on the financials?

    What Deal Will We Be Willing To Take?

    Be sure that you and your advisor agree on what a viable deal looks like. What are the absolute musts for you? What will make or break a deal?

    Will you keep or leave IP? What payouts, earnouts, vesting period, non-compete agreements, and deals for other team members will you accept or not?

    What Will I Do Next?

    It is best to already have a path forward mapped out. You will be much more objective throughout the process and focused on the right future vision.

    Plan your time off, and how you will go about researching and starting your next venture. These are some of the most critical things to think before hiring an M&A advisor.

    You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.

     

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    Neil Patel

    I hope you enjoy reading this blog post.

    If you want help with your fundraising or acquisition, just book a call

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