Have you bought, or sold, a business lately? If you did, how do you know if you received optimal value on the deal? Did you ask an M&A advisor? It can take years before the value gained can be objectively measured, or even whether the result was a business success. Recent McKinsey and Harvard research shows that nearly 90% of all M&A deals fail to deliver the value expected or achieve their M&A goals. How can this be? Several factors lead to poor M&A results.
In the next article, we will discuss the importance of having an M&A advisor in your company’s transactions. We will also discuss the most critical aspects of doing their job well from the advisor’s perspective.
Pick the Right advisor in your company’s sale
Paul Hager, Partner at ONEtoONE Corporate Finance, speaks from experience. As someone who has bought companies as a member of the Fortune 500 investment committee and as a valuation and investment advisor to M&A clients, he has found that the team you select to be your investment advisor plays a significant role in the amount of value created in the deal. He has listed characteristics that exist in all exceptional advisors. You can find them below.
An exceptional advisor:
Asks “Why?”: The “5 Why” method states that clear insight leads to the best decision and that insight is likely to come after you’ve assessed answers to five iterations of “Why?”. An exceptional advisor asks “Why” to continuously validate assumptions, eliminate wasted effort, explore new deal options, and sustain deal focus.
Understands your business: The M&A advisor must have an empirical view of current and future industry trends, enabling technologies and interdependent industries that significantly increases the value ceiling. As a result, they will develop an optimal set of investment candidates for each client.
Spearfishes: An exceptional investment advisor will find those investors and companies that most value a specific client’s offering. Using the “5 Whys” and other analytic methods (e.g., Porter’s 5 Forces) to build a well-defined target profile, the advisor will quickly identify ideal matches for each client.
Leverages global reach and local insight: A good advisor will leverage an expansive global investor network that connects multiple industries. An effective N&A advisor will leverage access to trusted M&A colleagues with a deep understanding of financial markets, industries, and companies in each region of the world. This allows them to open discussions with new investors and corporate networks that promise to hold a most significant interest in the deal.
Takes business, personally: A good investment advisor is continuously mindful that M&A success depends on people to embrace and support implementation – before and after the deal. Applying the previous four facets helps create and expand deal value. An exceptional investment advisor knows that business is personal and that its most significant value asset must be supported, nurtured, and challenged. The only suggestion of Paul Hager is that you chose an investment advisor who also possesses the five qualities mentioned above. If you do, you will capture exceptional value in your deal.
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Why many M&A advisors are not sufficient?
Being an M&A advisor is not an easy task. We have just talked about the characteristics that a good advisor must have to be hired for your company’s transactions. But it is normal for a business owner who thinks about selling his company to be afraid of hiring advisors.
It is a crucial decision, there is a lot on the line, and many things are going through his head: “Are they going to fight for my best interest? Do they have a large enough contact base to sell this? What if the charge me a lot of money, make us work, play around and then nothing happens?”.
It is true, a lot of “advisors” do not do practical work. They are good at documentation, valuations, analysis, etc. But they do not know how to locate the right buyer; they do not have the technical and human resources needed, so they cannot spend the necessary time to find the right buyer. That is why, regardless of their efforts and excellent skills, they fail to sell your company and let you down.
According to our Chairman of ONEtoONE Corporate Finance, Enrique Quemada: “Our experience in dealing with more than 1500 mandates has shown that 70% of the outcome of a business sale is based on an extraordinary amount of work on the buyer search and contacting of the key decision-makers. That is an intensive and heavy workload that cannot be done by a small team or a single advisor; the reality is that without a strong support system, they will not be able to do it”.
If this is your company and is the most critical transaction of its history, you deserve an elite team working to maximize the transaction sale value.
If you want to sell your company, make sure that the advisor you choose can provide you with this level of search capabilities to find your buyer and beware of the buyer who attacks your advisor.
If you sell a business, I warn you that buyers know that advisors play a very relevant role for the seller, and some will try to bypass them and speak directly to the company owner. We had the following experience: “Once the conditions for the contract and a deadline to sign the SPA had been set, the buyer asked to have a personal meeting along with our client. The buyer asked for a 30% payment deferral in the meeting, and our client agreed. The next time we met with him, he told us what had happened. When we asked him what guarantees they had given him for this payment, he did not answer. He had not gone into detail with the buyer, and he soon realized what a mistake he had made not having his advisors with him when making concessions”.
In some cases, a buyer tries to gain the client’s trust and encourages him to forget about his advisors, insisting that things will be smoother if they speak one-on-one. I recommend that you never fall into that trap. A trap set up without a doubt to negotiate with a less experienced person to get a better price.
How can the advisor help his client?
For an excellent professional dedicated to clients’ advice, such as a lawyer or a financial advisor, it is vitally essential to advise and guide him towards the best possible decision. When a business owner asks for advice on his company’s future, the advisor faces two types of clients: those who want to sell their business but do not know-how, and the ones who should sell their company but do not know it yet. What both business owners have in common are significant reasons to sell their businesses. These reasons tend to be:
- The proximity of retirement.
- It is unable to keep up with competitors.
- Lack of sufficient resources to implement the latest developments in his sector.
- Personal reasons such as health issues, being tired after years of hard work or the desire of spending more time with family and loved ones.
As a professional, the lawyer or a financial advisor’s responsibility is to recommend his client a great expert in M&A. Here is where in ONEtoONE, we want to help these consultants and give them the reasons we are the best companion for their client during his M&A process.
ONEtoONE: the best choice of advisor for your M&A transaction
At ONEtoONE, we are a firm specialized in M&A that supports our clients throughout the entire sales process. We offer a 100% specialized service to maximize its value and thus create interest and competition for it. We achieve this thanks to our international team of financial and sectorial experts. Our cutting-edge technology has allowed us to develop a proprietary methodology and developed our proprietary methods.
We guarantee the clients that we will always comply with our three pillars during the sales process: methodology, competence, and transparency. ONEtoONE applies its values and methods in all its services: sale and purchase of companies; mergers, business valuations, investor search, strategic financial advice, and financial advice.