When I talk to people about our M&A process I am often asked whether or not I recommend hiring an M&A advisor. This question is especially likely when I tell people that besides a fixed monthly retainer, many M&A advisors ask for a success fee, which will be anywhere between 3% and 7% of the total transaction value. If you sell as example your company for EUR 20 million, it is likely that you would pay over EUR 1 million to your M&A advisor.
In an earlier blog post about choosing the right M&A attorney, I wrote that most start-ups have only a small team involved in the negotiations. But the corporate buyers might assign a larger team to the deal. With more members at the table, the buyer can appoint ‘bad guys’ and ‘good guys’ to the negotiating team. The ‘good guys’ explain, nicely, all the reasons why the ‘bad guys’ cannot approve what you are asking for. In this dance between your team and the buyer’s, it’s important to defend your position in the best possible way across a broad range of topics. Your M&A advisor should be able to help with difficult and contentious issues, allowing you to preserve your goodwill in the relationship. Having said that, I do think that at this late stage of a transaction, the M&A attorney is more important to you than the M&A advisor.
The real value of an M&A advisor is at the earlier stages of an M&A transaction. It starts with the aligning of expectations among the founder’s team and the shareholders about the potential outcome of an exit. This can help you to avoid unrealistic expectations, especially if you have not considered selling a company before and have no M&A experience within your team. It also helps to align everybody to implement the right process with a proper schedule and the right resources in place.
Many people who are sceptical about M&A advisors claim that contacting and meeting buyers is much easier than it was. I also think that’s right, but what is not so easy is getting through their filters as a viable acquisition target. In my view, this is where the credibility and the network of the M&A advisor can be very important for you. Typically, the advisor can also help you to understand better which are today’s logical buyer groups for your business, and enlarge the group of potential buyers for you.
For me, the most important element of all was the credibility attributed to us (as the seller) based on the advisor’s credibility. Especially if you are a small company based in a less than renowned start-up location, you need a certain international credibility if you are to optimize your exit value.
Taken together, all the aspects described above should enable you as the seller to achieve value that you might not otherwise have realized on your own, thus covering the fee of the M&A advisor.