Whether Buying or Selling a Company: Pick the Right Advisor

Written by Paul Hager, Partner of ONEtoONE Corporate Finance United States

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?

Well-known, high-profile deals like Daimler-Benz-Chrysler; Time Warner-AOL; Quaker Oats-Snapple; Sears-Kmart; Google-Motorola; Sprint-Nextel, are extreme examples of deals not meeting expectations. A number of factors lead to poor M&A results. These include: simply paying too much; fundamental cultural mismatch; massive infrastructure incompatibilities; significant redundancies; or no product synergy whatsoever (i.e., the marriage simply wasn’t ever going to generate products customers would consider more valuable).

How to choose the best M&A advisor

As someone who has bought companies as a Fortune 500 investment committee member, and as a valuation and investment advisor for M&A clients, I’ve found the team you select to be your investment advisor plays a significant role in the amount of value created in the deal. I hope my thoughts might help you pick the right investment advisor, and significantly increase the likelihood of you achieving your M&A goals. Below, I’ve listed characteristics I think exist in all exceptional advisors.

1. Asks “Why?”

You’ve likely heard of Simon Sinek’s Golden Circle paradigm or Paul Ambruso’s use of the “5 Whys” to discern the root cause of success and failure. The “5 Why” approach was derived from Taiichi Ohno’s 1960s Toyota Production System methodology. Its purpose is to identify inefficiencies, waste and inconsistencies in manufacturing.

Most importantly, the technique can help people discover and objectively assess assumptions, biases, facts, priorities of any endeavor. Whether this be personal or professional. In our case, it applies to buying or selling a business. The “5 Why” method states that clear insight leads to the best decision. That insight is likely to come only after you’ve assessed answers to five iterations of “Why?”. For example, your investment advisor might ask:

• “Why do you want to buy a business?
• Why do you think buying another company will lead to greater innovation?
• Why do you think this type of research capability will lead to needed innovation?

Asking “Why” throughout the M&A process leads to clearer understanding of why a certain type of company or investors would be the best match. Additionally, an exceptional advisor asks “Why” to constantly validate assumptions, eliminate wasted effort, explore new deal options, and sustain deal focus.

2. Understands your business

As an M&A advisor, there is no adequate substitute for deep understanding of a client’s operations and industry sector. Furthermore, having empirical insight into current and future industry trends, enabling technologies, and inter-dependent industries dramatically heightens the value ceiling. An exceptional investment advisor will use this insight, and that of her other industry experts, to further develop a set of optimal investment candidates for each client.

3. Spearfishes

Last year, a friend of mine told me of her exciting trip to Bora Bora (How nice is that?). She said the restaurant would take their dinner order the day before, so that snorkelers could search for the exact type and number of fish needed for their guests’ dinners. No waste in effort, time, or resources (fish not on the menu appreciated that). The diver knew the depth and location to find the type and size of desired fish.

An exceptional investment advisor will find those investors and companies that most value a specific client’s offering. By using the “5 Whys” and other analytic methods (e.g., Porter’s 5 Forces) to build a well-defined target profile, the advisor quickly identifies superior matches for each client.

4. Leverages global reach and local insight

It is sometimes more efficient and expeditious for advisors to contact corporate, institutional, and private investors with whom they regularly do business – “the usual suspects”. Due to established trust and understanding regarding these investors’ preferences and capabilities, advisors will work within their established networks. That’s understandable. But, the best strategic partner, the one that may most value the client’s offering is often not within any investor’s direct set of contacts.

The best advisor is one who will leverage an expansive global investor network that connects multiple industries. Investors who most value your offering may be in Singapore, Prague, Estonia, or Shanghai. They will also leverage access to trusted M&A colleagues with 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 greatest interest in the deal.

5. Takes business, personally

I surmise at least 60% of a company’s value is its people. Alternatively, if applying the Pareto Principal, 80% of a corporation’s value is its people. A good investment advisor is constantly mindful that M&A success depends on people to embrace and support implementation. As well as the fact that this is important both before and after the deal.

Having been an entrepreneur, and having also worked to grow small businesses for nearly twenty years, finding a successful M&A match helps to improve the lives of people in each company. Cultural rifts and redundancy layoffs can destroy the deal, its value, and peoples’ lives.

What are the benefits of following these steps?

Applying the previous four facets helps create and expand deal value. The best M&A advisor knows that business is personal. Furthermore, they know that the company’s greatest value asset must be supported, nurtured, and challenged. A successful M&A deal will do that. There are many exemplary investment banks and advisory groups around the world. Whether it be a top-tier large firm, or one with a boutique focus, these firms have phenomenal analytic research, and deal-making talent.

My only suggestion is that you chose an investment advisor who also possesses the five qualities mentioned above. In doing so, I am confident you’ll capture exceptional value in your deal.

If you are looking to optimize the value of your investment, I encourage you to evaluate ONEtoONE Corporate Finance. The firm is dedicated to providing the highest value services to their clients through transparency and professionalism. For more information click the button below.