What is an M&A advisor? There are consultants and advisors on all sides of the mergers and acquisitions (M&A) world.
These include investment banks that operate as middlemen in megamergers, law firms that perform due diligence and contractual work.
Change management experts that provide advice during the post-merger integration phase are also M&A advisors.
One of the most popular types of experts in this market is M&A advisory.
They are there to help buyers and sellers in this $25B a year dealmaking space.
Despite the COVID-19 issue, the global market for Mergers and Acquisitions Advisory, which was anticipated to be worth $25.1 billion in 2020, is expected to increase to $30.5 billion by 2027, at a CAGR of 2.8%.
Understanding the basic mechanics of how to sell something is pretty simple.
But knowing how to maximize the value of a company and effectively promote it is an entirely different story.
Read further to learn what an M&A advisor does and their roles in the industry.
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 is an M&A Advisor?
- 2. The M&A Advisor’s Role and Responsibilities
- 3. An example of the M&A process may run like this.
- 4. Strategic analysis of a potential transaction
- 5. Documentation and negotiation
- 6. Approval by the Board of Directors
- 7. Regulatory Filings and Shareholder Disclosure
- 8. Approval by shareholders
- 9. Closing
- 10. How can an M&A advisor benefit your business?
- 11. M&A Advisory Firms Vs. Investment Banks
- 12. What Does M&A Advisory Cost?
- 13. Choosing M&A Advisors
- 14. What should I look for in an M&A advisor?
- 15. Experience
- 16. Process
- 17. Fees
- 18. Team
- 19. Conclusion
What is an M&A Advisor?
Intermediaries conducted in mergers and acquisitions are referred to as M&A advisory.
The bulk of this focuses on providing advice to buy-side and sell-side corporations on mergers and acquisitions.
However, M&A advisors also perform market research and assist companies in raising capital for M&A.
They may add a lot more value than you think.
Before we talk about the M&A advisor’s key role and responsibilities, know that their primary objective is to get the best price possible for the venture. For more information about how to value your company, check out this video I have created.
The M&A Advisor’s Role and Responsibilities
M&A advisors are primarily responsible for advising both buy-side and sell-side companies on mergers and acquisitions.
Usually, the company hires the M&A advisor at the start of the deal process.
The company gives them the authority to play a more active part in the process in exchange for a retainer fee and or a success fee.
This fee is usually a percentage of the final transaction value.
A qualified M&A advisor may bring a lot of value to a business owner.
Especially if they have little or no experience with mergers and acquisitions.
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Although the following list is not complete, the majority of these responsibilities are performed by many M&A advisors:
- Explain each step of the transaction process in detail to ensure you know what exactly to expect.
- Analyze your company’s performance and, if necessary, collaborate with you to guarantee that it is ready to sell. This varies between businesses and can take anywhere between six months to two years.
- Provide you with a fair business appraisal to give you an idea of how much your company is worth.
- Assist you with compiling the correct paperwork, such as business plans, forecasting, and management presentations.
- Create a competition for your business through marketing it and getting it in front of the relevant people at the right time. This will increase the value of the offers.
- Navigate the process with the help of other third parties to guarantee the relevant due diligence and legal documentation is completed on time.
- Manage the early responses, assess potential buyers, and ensure that only those bidders who are serious about buying your company advance to the next round.
- Arrange and attend meetings with potential buyers, and supply them with the information they need to make an offer on your company.
- Negotiate with the buyer or buyers after due diligence is completed to reach an agreement on the best deal for your company.
- Prepare all sale agreements and ensure that critical areas like earnouts, taxes, and working capital are agreed upon by the buyer and the seller, reducing the possibility of a sale falling through.
- Together with the seller and lawyers, finalize the Sales and Purchase Agreement.
An example of the M&A process may run like this.
1. Strategic analysis of a potential transaction
Potential acquirers and merger partners will be identified by the M&A advisor, who will be contacted in confidence to discuss the deal.
The M&A advisor will meet with potential partners as they respond to see if the transaction will work.
Meetings with serious potential partners for follow-up management meetings to determine terms.
2. Documentation and negotiation
Definitive Merger and Reorganization Agreement to be negotiated. Negotiate the Board of Directors and management’s pro forma composition.
As needed, negotiate employment agreements. Ascertain if the transaction satisfies the criteria for a tax-free reorganization.
Prepare legal documentation based on the outcome of the negotiations.
3. Approval by the Board of Directors
The Boards of Directors of both the Client and Merger Partner meet to ratify the transaction.
In contrast, the M&A advisor and whoever is advising the Merger Partner issues a Fairness Opinion.
This document attests to the transaction’s “fairness” (i.e., no party is underpaid or overpaid, and the deal is fair).
All final agreements have been signed.
4. Regulatory Filings and Shareholder Disclosure
Both firms prepare and file the necessary documentation (Registration Statement: S-4) and hold a shareholder meeting.
Prepare antitrust filings (HSR) and start putting together integration plans.
5. Approval by shareholders
Both firms conduct a shareholder meeting to vote on the transaction.
Effect share issuing and close merger and reorganization.
How can an M&A advisor benefit your business?
How can M&A advisors benefit businesses? What is the true worth and benefit of an M&A advisor to a company?
There are three main ways that M&A advisory services bring value to businesses:
- M&A advisors are specialists in the M&A process, which is one of the most complex and expensive investments a company can undertake. Everything from valuations to due diligence falls under this category. The success of the M&A process will determine the success of the company to a considerable extent. Thus it’s critical to get it right. This is when solid M&A advice comes in handy.
- Any company’s board of directors will believe that they are experts in their field. However, they may not be as well-informed as they believe. Prominent M&A advisors invest millions of dollars each year to ensure that they acquire market-leading information on topics outside the scope of ordinary businesses, such as market transaction multiples, private company revenue, income, etc.
- M&A advisors tend to amass extensive contact lists due to their constant involvement in transactions. Would you like to buy a business in a certain area? If your M&A advisor has contacts in that area, there’s a strong possibility they’ll know someone who knows someone who can put you in touch with some of the best buyers. For the hiring company, this door opening ability helps to save time and money.
Another key advantage of hiring an M&A advisor is that they will ensure no distractions within the management team.
They can focus on running the business, assuring sustained financial and strategic success.
You want to avoid your business’ performance deteriorating, resulting in the loss of clients, staff, or revenue.
That’s because these are all crucial elements that will influence the final price you receive when selling your company.
M&A Advisory Firms Vs. Investment Banks
In a buy/sell transaction involving a business, investment banks and M&A advisory firms can undertake many of the same tasks.
However, there is a significant difference in terms of size.
Goldman Sachs, JP Morgan, and Morgan Stanley are among the top investment banks globally, regularly advising multibillion-dollar transactions.
Because of the resources required at the high end of the market, it is impractical for these firms to handle the middle and lower sectors.
Deals can range anywhere from ten million to several hundred.
As a result, an M&A advisory firm may be a more appealing alternative for startups or smaller businesses.
Or companies with revenues of less than $5 million or $10 million.
Though leading M&A consultants have also been involved in successful transactions ranging in the $100M to $1B range.
Unlike many M&A advisors, investment banks have large teams of industry experts.
They also have market analysis departments, in-house legal, and more. This can be a pro and a con.
A great deal of their staff can be made up of brand new college graduates with no experience.
And their hefty overhead means that they have to charge a lot more.
What Does M&A Advisory Cost?
Firstly, investment banks’ world-class legal counsel and brand names aren’t cheap.
It frequently costs hundreds of thousands of dollars before a deal is finalized.
Investment banks often charge tens of millions of dollars in success fees.
M&A advisory, on the other hand, can be more cost-effective.
You may be able to put great expertise in your corner, but with more appealing rates.
Success fees vary but are often between 5% and 10% of the overall transaction value.
You may also find more flexibility in just hiring these advisors based on your needs.
Whether that is consulting or running the entire process.
Choosing M&A Advisors
Some of the criteria for evaluating M&A advisors if you’re considering working with one for selling your company may include the following.
- Choose a firm that has a solid history
- Has sold within your industry before
- Has the technological ability to assess the market environment
- Consider any upfront retainer fees as well as the entire cost
- Consider the level of commitment the M&A firm requires in exchange and how that fits into your schedule and future objectives. For example; exclusive representation
What should I look for in an M&A advisor?
Selecting the best advisor for your company will directly impact how quickly the sale completes and the final price and terms you receive.
When deciding which type of advisor to contact, the transaction’s size will be a significant consideration.
You also need to consider the following crucial elements:
Make a list of their references. Do they have a thorough understanding of your industry and business?
What experience do they have selling businesses similar to yours? How many transactions have they finalized?
What percentage have they been successful in obtaining premium valuations? How will they promote your company?
What are their relationships like with potential buyers?
They should have their process documented. Will they invest time and effort to position your firm for a successful close?
How are they going to keep the transaction information confidential?
How much are their fees? What do they cover, and how are they structured? How do they compare to their competitors?
Who are the members of their team? Will your transaction be given the attention and focus it requires?
What is their track record and experience?
Take your time researching and interviewing M&A advisors, and soak up as much information as possible.
Build a relationship with an M&A adviser as soon as possible.
That will help you assess whether they are capable of carrying out the various tasks that you have assigned to them.
Look for proof in case studies, customer reviews, and feedback.
M&A advisors should be viewed as an alternative to investment banks by every small or medium-sized business owner.
They offer similar services but with different areas of expertise, pricing, and focus.
They may be exactly what you need to maximize the value of your company, and ensure you are pleased with the end result.
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