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August 20 2019

“Getting it right” - Choosing an M&A advisor to sell a business

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Successfully selling a business is often an exciting but complicated process. Multiple issues can arise at every stage, from confidentiality concerns to the selection of a suitable buyer, from setting a value for the business to the negotiation process and closing documentation.

Although entrepreneurs know their business inside out, they may not have the experience, time, nor the resources to manage the intricacies of such a process on top of making sure the business is running smoothly at the same time. In the majority of case, selling a business is often a once-in-a-lifetime event for most business owners, so getting it right is important.

This, as well as various other reasons, is why owners look to advisors. Below we highlight a few important points to consider when business owners choose an M&A advisor to assist them through their journey.

Setting Expectations Early

It is always a better practice that the entrepreneur communicate her intentions and objectives clearly and thoroughly with the advisor at the very beginning, which helps both parties set appropriate expectations early. Questions being asked to business owners might be: “What is your end goal? Do you intend to sell the entire business or wish to retain post-deal involvement? Why? To what extent do you want to keep your control?” Answers to these questions come from dynamic discussions with a potential advisor, acting as a sparing partner. In this manner, both the owner and the advisor are able to explicitly understand the end goal.

The interactions between the advisor and the business owner also allow both parties to understand if there could be a good fit to work together. Understanding early and ensuring there is a good match will help build trust and a strong relationship. With such a relationship established from the very beginning, the advisor can achieve the best effort to ensure that the whole process runs smoothly without unnecessary difficulties.

It is also crucial for business owners to have realistic expectations of the process. Through discussions and interactions, being open about the end goal in mind as well as building a relationship with a well-suited advisor, allows the owner to have realistic expectations for the transaction.

Expertise & Experience

Expertise in running a sell-side process for a business does not solely amount to finding a buyer. There are many other items to prepare before, during and after the transaction which are also decisive. Hence, owners should look for advisors with expertise and experience in:

  • Managing a process, maintaining confidentiality and having the ability to successfully close transactions;
  • Knowing the industry and understanding the current market environment;
  • Being able to deal with specific types of investors/buyers (financial, strategic, individuals, family offices, etc.);
  • Being capable and comfortable with the transaction size (for example, big firms won’t be motivated, small firms may not have sufficient ability to handle the transaction).

Confidentiality and Ensuring Minimal Disruption

Engaging an advisor is beneficial in order to maintain confidentiality on a number of levels. Many owners do not wish important stakeholders such as competitors, clients, suppliers or staff to know the business is up for sale. By appointing an independent advisor, the owners control the flow of information, the quality of information, as well as the people who have access to it. Besides, advisors are able to discretely approach potential parties more easily without immediately revealing who is up for sale and entertain discussions in a more informal manner. In some cases, using an advisor to discretely “test the water” may give an owner a good indication of the current mood in the market without unnecessarily sharing that the business is for sale.

Moreover, by using an advisor, a sell-side process can be undertaken professionally and smoothly so that the management team can continue to focus on day-to-day business operations without outside disturbance. The delegation of work allows the business to be minimally affected by the process, thereby limiting disruptions.

Value, Not the Cost

The cost, of course, is a factor that the owner should consider when choosing an advisor, however, it shouldn’t be a determinant one. Rather, the owner should look at the values added to a potential transaction. For instance, the quality of service, industry expertise, contacts to potential buyers, and various other skills the advisor can provide, should all be taken into consideration of the owner to appoint a suitable advisor.

Reputation

Choosing an advisor also requires entrepreneur’s own due diligence. He can review the track record of the advisor, see if there are any referrals from other business owners, and ask for evaluations from attorneys, accountants, bankers and other professionals that have worked with the advisor. These can be indicative of how they work and interact with clients.

To conclude, selling a business requires meticulous care and sometimes costly without having the right professionals on your side, who will make things a lot easier at every stage of the process.

For further information, please address your queries to advisory@cigp.com. For more information about our capabilities and a selection of our Case Studies, click here.