Part 2: Do It Yourself Or Hire An M&A Advisor?

Ah, the independent spirit. It's what makes America great...or is that McDonald's and free enterprise? Anyway, as an entrepreneur, you're probably used to getting things done yourself. There is likely a sense of pride and fulfillment in learning to master the different parts of managing your business, but also just plain necessity.

Selling a business is time-consuming and requires juggling many different moving parts. Can you run your business and go out and find buyers, determine what your business is worth, negotiate effectively with multiple buyers, and maintain confidentiality? If so, kudos! If any of that starts to stress you out...consider hiring an M&A advisor.

Benefits of Hiring an M&A Advisor-

• Formulate the proper exit strategy for your needs: The proper exit strategy will attract a large number of interested buyers. Not only do M&A advisors know how to successfully market business opportunities, but they also have years of experience and can provide valuable advice every step of the way. They are thoroughly familiar with each step in the business sale process and can anticipate potential deal problems ahead of time. 
• Help you accurately value your business: M&A advisors help you determine an accurate and fair value of your business assets. Their access to market data sources provides important information on how your business will likely be valued when marketed. 
• Bring an objective perspective to the process: M&A advisors are usually in a better position to negotiate a deal between a seller and the buyer. Most business owners have an emotional attachment to their business and selling the business can often be a traumatic experience. The M&A advisor can bring an objective perspective to the process and help the seller see the business from the viewpoint of a buyer, resulting in a more realistic understanding of the financial and economic factors being considered by the buyer.
• Free up time to focus on your business: It is critical that the business owner not “slack off;” the business must continue to thrive until the sale transaction is complete – because nothing is final until the final closing of escrow. Therefore, the seller should spend as little time as possible on selling the business and as much as possible on running the business to maximize the selling price. Advisors prepare confidential overviews that get buyers’ attention and thorough confidential business reviews that provide an in-depth look at the company’s investment highlights and opportunities for growth.
• Find and pre-qualify buyers: Not having to deal with people who are curious about the business, but may not be financially able to buy it, or qualified to run it are important qualifications. M&A advisors specialize in making sure the people introduced to your company have some interest and the financial ability to follow up with that interest. Because M&A advisors are in touch with many motivated buyers who are financially qualified, these advisors will have a bigger market of potential purchasers to draw from than will most business owners.
• Negotiate price and terms with the seller: A good M&A advisor can present the business in an appealing way in order to get a buyer to pay the price desired by the seller. Or at least, close to that price. Not knowing how to manage competitive bidding to increase offering prices, the seller won’t be able to accomplish that objective. Owners who’ve hired agents to sell business offerings often get a higher price than if they’d negotiated for themselves. The difference often is enough to cover the sales commissions, commonly known as success fees.
• Manage other partners and stakeholders in the process: Sell-side M&A advisors work for the selling owner and are an important advocate. Since most “buyers” will not actually buy a business, advisors are able to pre-qualify buyers to save the time of business owners. During sale negotiations, it can often help to have an advisor in between the buyer and the seller to keep things running smoothly as well as act as an emotional buffer in case tensions run high (and trust us, they do!).
• Move the Deal Forward: Business owners are busy and should stay busy managing their companies. M&A advisors can manage the marketing and sale process while allowing business owners to continue running the business. If a seller takes their eye off of the business and performance slips, they can bet that the buyer will ask for price or deal structure concessions at the 11th hour.
• Help Overcome Problems: M&A advisors know how to overcome problems in selling a business. The seller, having little experience in deal-making, will be less prepared and equipped to recognize and solve deal-killing problems than someone who has been doing this for a while, and earning a living at it. When a seller hires an advisor to sell business assets, the professional will know how to keep the intended sale a secret. It usually is important that employees and customers of a business don’t know that it is for sale. The DIY (do it yourself) seller may struggle to maintain confidentiality when responding to buyer inquiries and scheduling showings.

How to Hire an M&A Advisor:

It's a good idea to work with an advisor who is certified by one of the leading industry associations: The Alliance of Merger & Acquisition Advisors and the International Business Brokers Association.

These advisors have a huge advantage, but how do you find the right one? Most qualified M&A advisors have a real estate license and have relevant experience in selling businesses similar to yours. You will also want to work with a firm that has a strong record of successful deals.

Lastly, it may be in your best interest to work with an advisor that holds a real estate license in your state, especially if you are selling real estate in addition to your business. Beyond these considerations, think about how well the firm seeks to understand you and your future plans. After all, you're not just another fish in the sea. 

Some Warning Signs:

• Watch out for advisors who are quick to get you to list your business with them.
• An inexperienced or dishonest broker may be quick to affirm an inaccurate valuation to get business.
• Advisors who don't specialize in buying or selling a business.

About the author: Luis de la Prida is a Managing Partner and Principal of The NYBB Group and NYBB Commercial Real Estate, Inc. Luis is a Certified Merger & Acquisition Advisor (CMAA) with over 25 years of successful experience advising middle-market businesses and Fortune 500 companies. He works closely with clients looking for an intermediary to represent them in the purchase or sale of a business or real estate. Luis’s clients include entrepreneurs, private equity groups and other financial sponsors, and lower middle-market companies with annual revenues of $5 million to $50 million. Luis represents clients across all industries, with specialties in healthcare and business services.

For more information, you can contact Luis at lou@nybbinc.com