The Vital Role of Advisors During M&A
The role of a competent advisor is intrinsically delicate. Especially when it comes to mergers and acquisitions. Nowadays, selling a business is one of the most complex sales processes that exist due to the numerous levels of responsibility, rounds of valuations and corresponding actions that must take place at the right time, in the right place. Therefore, almost every successful merger and acquisition in history has referred to a professional advice of a third party.
Essentially, selling a business can affect several key groups of interest, including employees, customers, suppliers, community, financial institutions. For this reason, we advocate that you equip yourself with the most experienced advisors in the field to maximize the value of your company while ensuring that all counterparts are satisfied with the deal.
Some, usually smaller and privately-owned entities have managed to perform mergers and acquisitions without asking advice from third-party professionals, but in a prevailing number of times have learned the hard lesson. M&A performed without a third-party opinion leads to unnecessary delays, mismanagement, misevaluations, and complicated negotiations between counterparts. So how exactly are advisors help solve these nuances? Let’s have a look.
Who Knows My Own Company Better than I Do?
This is a vital question every business owner asks himself when it comes to selling a company and is commonly answered as ‘no one’. This common misconception is the one that draws a big cross on the success of a future deal.
Think of it as a classic example from game theory, an event called ‘prisoner’s dilemma’. If company A (Selling Company) doesn’t employ professional advice while company B (Buying Company does employ professional advice, then company A will receive a payout of 0, an equivalent of an undervalued price in our example, while company B will receive a payout of 1, a corresponding equivalent of a ‘good’ price for the deal. This leaves the selling company off at a disadvantage. The exhibit below portrays the game as a table.
As evident from this example, both companies are better off being prepared for the deal with a team of professional advisors if they want to maximize the value of the deal. As Enrique Quemada Clariana puts it in his How to Get the Best Price from My Company, “just as you shouldn’t face an IRS audit without the help of a tax advisor or build a house without the help of an architect, you shouldn’t sell your company without the help of an M&A advisory”. It’s as simple as that.
The Rationalization Process
Another way to rationalize having an advisor is by looking at the numbers. Statistically speaking, without an M&A advisor, even if the Memorandum of Understanding has been signed, the failure rate of such cases is over 60%. Expectedly, the rate drops to only 15% when an advisor is present.
Another brazen advantage of having an advisor on your side is having more time to make necessary amendments to maximize the value of the business. Time is one of the most valuable resources any business has, and it must be used wisely. In case of not referring to professional advice of an advisor, the owner can be easily overwhelmed with the number of different obligations and responsibilities that must be addressed simultaneously, leaving the business undermanaged and hence undervalued in the end. Advisors win time, advisors win money, that’s the bottom line.
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