How you benefit from
an M&A Advisory Firm

Exiting a business is one of the most significant events a person can experience. After years of establishing, nurturing and building your company, entering the M&A market is an emotional process. Most will only exit a business once, so it is crucial to get it right. That is why it’s critical to enlist the services of an M&A advisory firm, one that understands how to maximize the value of the company you’ve spent substantial time and resources growing.

The M&A process can be a minefield to navigate without the right M&A firm in your corner. Working alongside one not only helps overcome any hurdles along the way, but gives you an incredible amount of professional knowledge as you approach the departure from your company.

Here, we give an insight into what mergers and acquisitions is and the process behind it, and offer the reasons why M&A advisory services greatly improve your chances of achieving a business exit for the optimal value.

We are proud to operate as one of the top middle market M&A advisory firms in North America. We have sold more businesses in the past decade than any other firm or broker, and have been named Investment Banking Firm of the Year three years running by The M&A Advisor.

Our professionals will guide you through each stage and structure a deal that meets your needs. If you’d like to learn more, contact our team for information on exiting your business.

What is Mergers and Acquisitions (M&A)?

Investopedia defines mergers and acquisitions (M&A) as the following:

“A general term that refers to the consolidation of companies or assets through various types of financial transactions.”

Obviously, this is a very broad definition of what M&A is and the services involved in it. This encompasses several different forms of transactions, including:

  • Mergers - two companies agree to merge, with the acquired business ceasing to exist and becoming part of the purchasing firm.
  • Acquisitions - where a buyer acquires a majority stake in a firm, which doesn’t change its name or legal structure.
  • Consolidations - the creation of a new company from an agreement between two existing businesses, with each side receiving equity shares in the new company.
  • Tender Offers - where one company agrees to purchase the outstanding stock of the other firm at a specific price.
  • Acquisitions of Assets - one company acquires the assets of another business, typically occurring during bankruptcy proceedings.
  • Management Acquisitions - where the executives of a company purchase a majority share of the stock in another business, making it privately-owned in the process.

We delve deeper into the different kinds of mergers and acquisitions later on, but you can already see that M&A covers a notable range of activities. Knowing which one is appropriate for your situation, and then how to navigate the process associated with that specific type of transaction, requires specialist expertise.

Speaking to an experienced M&A advisory firm prepares you to navigate M&A activity with greater composure, and gives you backing of a valuable support network throughout this. Alternatively, you can learn more about the different forms of M&A by attending our complimentary executive conference.

What is an M&A Advisory Firm?

The goal of an M&A advisory firm is to guide its clients through the process of exiting their company in the most effective way possible. At least, that is the goal our dealmakers focus on accomplishing.

Without professional representation, the typical business owner is facing a daunting task when they approach the M&A process. The first hurdle is determining what the business is worth by establishing their EBITDA, then creating documentation to support that, and finally finding and negotiating with buyers willing to meet their value expectations.

The employment of M&A advisory firms to offer advice and guide company owners to exit hasn’t always been popular. Years ago when the private equity industry was in its infancy, most firms would cold call potential sellers. This was a very time-consuming process, but it gave the equity firm a huge advantage: They could offer rock-bottom prices and sellers would agree. 

Soon sellers recognized this and so too did investment banks that had focused traditionally on very large deals. Many started moving downstream into the lower middle market to fill a need consulting with smaller businesses.

We found our niche in the lower middle market, supporting our clients on their journey to a successful, fulfilling exit. Through our expertise across all industries, proven process and the diligence of our experienced M&A advisors, we have been firmly established as one of the leading firms in North America.

What is the difference between Mergers and Acquisitions?

While typically seen together, the two core components of M&A actually have several differences. As alluded to above, “mergers” and “acquisitions” do not accomplish the same thing.

A merger is when two companies join together to form a new, unified entity. These businesses will typically be of similar sizes, and, at least theoretically, both sides of shareholders will get equal share in the new company. In practice, this is not always the case.

Due to the requirement to establish a new entity, as well as the need for both companies to have a strong cultural connection to complete the merger successfully, this form of transaction is more uncommon than an acquisition.

With an acquisition, typically where a smaller company is acquired by a larger company, there is no requirement to establish a new entity. Rather, the purchased business ceases to exist and its assets consumed by the buyer. Because of this, acquisitions carry a negative connotation that mergers don’t, especially if there appears to be some reluctance by the seller to complete the transaction.

That is why we see mergers and acquisitions paired together - while acquisitions are far more frequent, mergers present these transactions in a more positive light. Therefore, the combination of the two into the regularly seen M&A deal is motivated by communicating information to the public, minimising any backlash towards an acquisition.

Is an Acquisition the same as a Takeover?

Over time, acquisitions and takeovers have been conflated to mean the same process. However, there is a marked difference between the two - a takeover is an acquisition of a company that has taken place without the agreement of the selling firm.

Commonly referred to as a “hostile takeover”, this usually starts by the shareholders of the buying firm purchasing shares of the target firm directly from shareholders (or through secondary markets). As shares represent ownership of a company, acquiring a majority of shares from shareholders can result in a proxy fight, where the buyers can attempt to win control of the board of directors and force through the acquisition.

Meanwhile, an acquisition is primarily agreed on by both sides of the transaction, where the selling firm is interested in relinquishing their assets to the buyers for an acceptable offer. This is when a seller would typically enlist the support of an M&A advisory firm to help ensure they receive an offer that reflects the true value of their enterprise.

What is M&A Deal Flow?

Deal flow refers to the amount of offers and opportunities an M&A advisory firm is presented at a point in time. Subsequently, firms benefit when deal flow is high, whether this is on the buy-side or sell-side of the equation. But, a strong deal flow is also highly beneficial to those looking to exit for the maximum value.

The Intralinks Deal Flow Predictor, one of the foremost guides of what the outlook for M&A deal flow currently is, has presented positive projections across this current seller’s market. For 2019, it anticipates the number of transactions in North America to grow 3 percent year-on-year, another demonstration of the amazing resilience of M&A in the middle market.

What makes the DFP from Intralinks unique among most forecasting tools is that it provides us with a snapshot of M&A activity months in advance of deals closing, since these early-stage deals are, on average, six months away from their public announcement of closing.

Why has M&A deal flow in the middle market been especially enduring in the last few years? First, it’s easier to locate financing for a transaction valued at $25 million against one valued over $100 million. This presents less risk for both investors and buyers to focus on several small acquisitions than one substantial purchase.

Secondly, the factors driving the buyers in our niche are much more strategic and long-term than those that focus on very large transactions. Buyers we’ve dealt with tend to be looking for new products, new geographies, new markets, access to new technology and skilled people. These features tend to make insulate buyers from other issues that may affect billion-dollar transactions.

In fact, if there is one notable negative on deal flow that we’ve witnessed in M&A, it is that there are simply not enough quality opportunities being presented to active buyers right now. Despite valuations growing, relatively few middle market companies are taking advantage of the situation, opening the door for those interested in exiting their business.

Of course, while strong deal flow in middle market M&A can be a big positive on both the buy-side and sell-side of transactions, it requires the guidance and expertise of an M&A advisory firm to allow these parties to capitalize.

What is M&A activity like right now?

The last several years have played host to one of the strongest seller’s markets in decades. M&A activity (both global and in North America) is riding a wave of positivity that is boosting business valuations and encouraging buyers to invest while the iron is hot.

2018 was a record-breaking year for M&A activity. When Merrill Corporation released their December and year-end reviews of M&A activity, it revealed that deal value in the U.S. and Canada exceed 2016 and 2017 levels, both banner years themselves, as well as another strong year for private equity investment, a key element of this seller’s market. At this point, barring some very potent economic changes hit, or some geopolitical crisis rears its ugly head, buyers will continue to be very aggressive in 2019.

Furthermore, Citizens Capital Markets (part of the Citizens Financial Group) recently published their own survey about future M&A activity. Their results are of this survey are highly indicative of 2019 being a positive year in the M&A market for both buyers and sellers, as well as fascinating findings that both sides prefer to work with M&A advisory firms on transactions.

What is behind this incredible M&A activity? There are several factors that typically sustain seller’s markets in any environment, that have been notably present across the past few years:

Sellers market checklist
  • Strong economy - high confidence over the strength of the economy motivates buyers to use the money they’ve accrued to acquire a business, diversify their offering and enter new markets, which will help them maintain their growth when the economy slows down.
  • Active buyers - as previously mentioned, buyers are looking for well-run businesses right now. And, if they can’t find them, they are more likely to take chances on companies they consider have a high potential for long-term growth with better management during times of increased M&A activity.
  • Interest rates - while interest rates have been gradually increasing, they are still at generally low levels right now, releasing more capital for prospective buyers to invest into their M&A strategy.
  • Tax relief - the late 2017 reduction of the corporate tax rate to 21% has added fuel to the current strong seller’s market, giving companies additional capital and incentive to spend now on assets and companies that will improve their offering.
  • Private equity funding - the amount of available capital committed to equity firms right now is at a record high. This money will need to be eventually invested or it has to be returned to the PE firms limited partners. As the latter is not a welcome event, odds are good that all this money will be chasing far too few deals in the coming year, maintaining the seller’s environment we are now in.
  • More competition among buyer types - with the rise of several different types of M&A buyer (as well as the global links many M&A advisory firms have established), this more competitive environment causes business valuations to rise.
  • Young buyers - There is a greater trend of younger buyers with a willingness to risk it all for the opportunity of earning a greater return than they can anywhere else. This feeds into the idea that purchasing an already sustainable company and growing it is more achievable than building one from scratch in a competitive landscape.
  • Baby boomer business owners - as more and more business owners approach retirement ages in the next decade or so, this will result in far more M&A activity in the foreseeable future.

Overall, this means that buyers right now have more confidence than normal investing in smaller, privately held companies AND they are choosing to invest their capital in lower middle-market businesses. It is crucial that those contemplating an exit reach out to an M&A advisory firm while activity is this notable, before you miss out on an ideal opportunity to achieve an optimal sale.

As previously mentioned, the big M&A trend right now outside of this remarkable seller’s market is the big issue among buyers: there simply are not enough businesses in the market today to acquire. This overarching trend represents a significant opportunity for those prepared to exit with the backing of a professional M&A advisory firm in their corner - now is the chance to secure an optimal offer before buyers become less active or the market becomes considerably more crowded.

Professional buyers generally have mandates that revolve around key M&A strategies that they are pursuing. Some we have seen in recent years include:

  • Geographic expansion
  • Product line addition
  • Vertical and horizontal integration
  • Economies of scale
  • Access to skilled employees

These are just some of the M&A trends motivating their activity at this moment in time. But, these trends only build upon proven home truths:

  • Big companies really do buy small companies.
  • Buyers might see different opportunities for growth in your business than you do.
  • Buyers are buying your future, not your past.
  • Often you are too close to the daily grind to realize the significant opportunities your company can capitalize on in the hands of new ownership.
  • Your company probably has significant “intangible assets” that an experienced M&A team can leverage to attract buyers.
  • You most likely have been minimizing your pre-tax profits for years. Recasting allows you to present the true profitability of your organization.

You may now see you have lots to learn about exiting your company for maximum profit. Most middle market business owners do, which is why we offer comprehensive guidance about how to sell your business .

With the backing of an M&A advisory firm, you put yourself in the best position to capitalize on current M&A trends and these everlasting scenarios to maximize the value of your company when the time comes to exit.

What is your M&A strategy?

Your M&A strategy is the plan outlining your corporate development efforts, utilizing mergers and acquisitions to benefit you and your business. This could be securing investment for company growth, or exiting the business for the optimal value. Outcomes might differ, but having any form of exit strategy is a must.

A survey conducted by the National Center for the Middle Market in 2018 aimed at executives who had either recently completed a transaction or were seriously considering entering the M&A market identified several details that could influence your M&A strategy:

  • When middle market executives initiate acquisitions, the buys are mostly based on a strategic rationale: buyers are looking to drive growth by acquiring market share, capabilities, technology, and/or talent.
  • A majority of middle market executives who participate in M&A say that inorganic growth plays an important role in company growth strategy. The desire to drive growth is the number one reason companies consider M&A.
  • The availability of more money to go after a relatively constant number of targets is driving valuations up. So, while actual deal counts have increased only slightly, there are more players in the game along with a heightened sense of urgency around deals.
  • With many deals, progress can be slow and difficult to measure due to unexpected issues. Most deals take three to twelve months to complete. The planning horizon to become deal-ready ideally should be three to five times as long as the deal-making process itself.
  • Developing or getting help with capabilities in planning, financial reporting, valuation, and execution well in advance of having a specific target in mind ensures that companies are ready to move when the time comes.

This cannot be stressed enough: if you want to exit in the next 9-15 months, you need to start your M&A strategy right now. Really - stop reading and start planning. In reality, you should have a relationship started with an M&A advisory firm as early as possible in order to maximize your results.

Exit date 9-15 months' time | Planning date now

In many cases, M&A deals can fall apart because sellers have not created or followed their exit strategy closely. Without this guideline for sellers, they risk falling into several pitfalls along the way to achieving a sale and, even if they do complete their exit, it likely won’t be for an optimal value.

If you are ready to start creating your M&A strategy, take the first step by attending an executive conference. Our strategic M&A advisors provide a unique, in-depth insight into M&A activity and the keys to building a buyer ready business.

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What are the types of Mergers and Acquisitions?

As alluded to earlier, there are several different types of mergers and acquisitions that a business owner might be involved in when they exit. This variety of deal structures demonstrates the importance of hiring a top M&A consulting firm - they will be experienced in these subtle differences, and be able to guide a client through the process in pursuit of the maximum value.

Below we outline some of the most notable kinds of mergers and acquisitions, giving you a little bit of insight into what kind of deal structure might be the best fit for your ambitions for exiting your company.

What is a Conglomerate Merger?

A conglomerate merger is a transaction between two companies in completely different industries. There are two distinct types of conglomerate - pure and mixed. Pure conglomerates are between companies with absolutely nothing in common, while mixed focuses on firms looking for market or product extensions.

You may be wondering what the benefit is of a merger between two companies with little to nothing in common. For the buyer, this could represent an opportunity to diversify their product offering, expand their customer base to wider markets, or bring on board talent that they feel could acclimatize to the new environment effectively.

Thanks to the repository of professional buyers M&A advisory firms offer, this gives exiting business owners access to a wider range of buyers than they initially anticipated, and therefore make it more likely to find the right offer.

What is a Consolidation Merger?

A consolidation merger represents the absorption of a selling company into a (usually) larger buyer, with the aim of improving the financial strength, capabilities, reach and other factors that both parties individually would be unable to reach (at least not in such a succinct span of time).

Consolidation Merger

What is a Horizontal Merger?

Unlike a conglomerate merger, a horizontal merger takes place between two (or more) companies that operate in the same industry. This merger is particularly common as larger firms in the industry seek to reduce the number of competitors, incorporate innovative technology/methodologies into their business and create stronger economies of scale.

In addition, due to the existing synergies between the companies based on their shared industries, this can make it easier to immediately connect with new audiences that the selling company had access to.

Horizontal Merger

What is a Vertical Merger?

You might assume that a vertical merger is the opposite of a horizontal one. In fact, this M&A transaction is when two or more companies are at different stages of the supply chain for a common product or service. By making the merger, the company that is lagging behind in this situation has the opportunity to get up to speed with the latest information instantly, gaining control over the supply chain process and improving its overall capabilities.

What is a Transformational Acquisition?

A transformational acquisition brings together two (or more) companies under a completely new business model than either business was previously working towards, while utilizing the shared assets, technology and personnel available. Due to this, M&A activity of this nature requires a significant operational integration of both companies into this new business model - how successfully this is completed will likely define the success of this transaction.

By bringing an experienced M&A advisor on board for this process, you’ll be better placed to determine if both companies have the potential to pursue this new model without significant difficulty.

What is a Congeneric Merger?

A congeneric merger is where both companies are based in the same industry (or a closely related industry), but do not offer the same products. An example would be a newspaper merging with a TV channel – both different industries and products, but you can understand why they might link up. This can help the acquiring company to expand their product offering and reach into new markets by giving them access to the products of an existing business, rather than spend time and expense researching and developing these themselves.

What is a Tuck-In Acquisition?

Usually occurring when a larger business acquires a smaller one, a tuck-in acquisition is where a smaller entity is absorbed into the existing structure of the acquiring company. This could be completed for several reasons, such as the acquired company having an especially skilled workforce, access to a unique product that the larger entity wishes to incorporate, or a more refined process/technology.

Overall, this is a way for the acquiring company to gain a competitive advantage in their field without going to the added expense of instituting this change themselves. When completed successfully, this can greatly increase a company’s productivity and capabilities with just an initial expenditure.

What is a Bolt-On Acquisition?

Often conflated with tuck-in acquisitions, bolt-on acquisitions are actually slightly different. In a bolt-on, the acquired company is less likely to be fully absorbed into the purchasing company, and will often still operate under its own brand with the added investment of the buyer. This is typical of the M&A strategy of private equity firms, who will often “bolt-on” or “add-on” companies to a platform company they are intending to develop through the capabilities and skills of the acquired business.

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What is the Merger and Acquisition Process?

Regardless of the type of deal listed above, the M&A process can often take upwards of a year to complete effectively, even with the guidance of a professional M&A advisory firm in your corner. Business owners need to remember that it is a process, not an event, and that only by following the numerous steps closely do you give yourself the best chance of receiving an optimal offer.

When we first encounter business owners, we ask them “What is your timeline for exiting your company?” Often, we are met with a blank expression in return, or a response that they intend to exit as soon as possible. When we get that answer, we then ask if they know the M&A process, and then blank stare appears.

You can learn about our comprehensive 16-step approach to the M&A process in our ‘how to sell a business’ guide.

Now don’t get me wrong, most middle market M&A advisors will follow a similar process, especially after the “Go To Market” decision is made. However, what sets our firm’s process apart is in the more comprehensive preparation and the skill of our advisors.

While we’ll break down the advantages of hiring an M&A advisor in a later section, below we highlight the various services included in our M&A process, and how each contributes to your goal of exiting a business for the ideal offer.

Exit Planning Guidance

A formal exit plan should cover two key issues:

  1. How much capital will you need post-sale?
  2. When do you plan on exiting?

Answers to both of these are critical in the M&A process. Both are totally subjective and down to the needs and interests of the seller. However, when you choose to exit should be a mixture of when you’re ready to depart your business AND when it’s a seller’s market, where business valuations are typically at their peak.

Exiting a company via an acquisition/merger event is a huge undertaking for most business owners, and planning is an often overlooked but completely crucial stage. Our M&A advisors have decades of collective experience working with business owners through this often emotional, stressful process, helping to get them on the right foot for the rest of the journey.

M&A Due Diligence

Few entering the M&A process for the first time will realize the importance of completing a due diligence checklist until they are in conversation with a buyer asking questions about common issues that can lessen the value of your company, or potentially derail the deal altogether. These issues include:

  • Excessive owner dependence
  • High customer concentration
  • Poor accounting systems
  • Lack of documentation
  • No middle management

A typical due diligence checklist consists of 200-300 detailed questions covering every aspect of your business from sales and marketing to HR, IT, operations, and accounting. This is where most deals can fall apart, especially if the documentation is not accurate, and readily available, to provide buyers.

Working with a reputable M&A advisory firm helps prepare business owners for this precarious stage of the process. By conducting an initial due diligence checklist, our dealmakers identify any areas where our clients could come into difficulty, so they can be addressed or explained before buyers come anywhere near your financials.

Full M&A Documentation Guidance

The 200-300 questions covered in due diligence is just a start, as there is a significant amount of M&A documentation that must be compiled to complete a transaction, including:

  • Offering Memorandum
  • Confidential Business Profile
  • Non Disclosure Agreement

Full M&A Documentation Guidance

Working with M&A advisory firms to collect the information required for these critical documents and compile them into these formats not only saves time and resources for sellers, but increases the likelihood that all information is accurate. Indeed, buyers actually prefer this is conducted by strategic M&A advisors because, even though they may have to pay more for the company at the conclusion of these negotiations, they feel reassured that all information will be accurate, reducing their workload.

Buyer Analysis

The goal of the M&A process is to find the optimal buyer for your company. An M&A firm takes the time to create buyer lists that are informative and well-researched, covering strategic, financial, family offices, off-shore entities, and synergistic buyers. This comprehensiveness helps find the best fit for your business.

We don’t use a “cookie cutter”, one list fits all approach that other M&A advisory firms use. We take the time to get to know you, your financial goals/needs, and your company to find the buyers that make the most sense.

Limited Auctions in M&A

Again, we’re pursuing an optimal offer for your business, and one of the key ways to get this is through a limited auction.

As we all know, prices go up if there is more demand than supply. Auctions are great ways to create this supply-demand deficiency. You have one company. If you have multiple buyers interested in your company, you will most likely get more for your company.

Using an M&A advisory firm gives you this opportunity. An M&A advisory firm, by its very definition, will force prospective buyers to consider that there will most likely be competitive bidders for your transaction, thus driving up its valuation.

Could you create an actual limited auction on your own? Possibly, although unlikely, since you don’t have a database of thousands of buyers that several M&A advisory firms can access. This breadth of potential buyers can greatly improve your chances of gaining the maximum value on exit.

Buyer Negotiations

Closing a transaction requires detailed negotiations over the factors that will ultimately affect you, the seller. Working with M&A consultants means you will enter this with the support of professionals that have been through this process countless times, while it is likely you’d be entering this arena for the first time.

Remember - buyers are savvy, and they’re focused on achieving the best deal they can as well. An M&A advisor by your side is a powerful ally during these business negotiations, helping sellers to understand what the buyers are really after, and guiding the transaction to close. 

Deal Structure Guidance

Every client we work with has unique personal, financial and business goals motivating their M&A strategy. As we’ve highlighted in a prior section, there are several different types of mergers and acquisitions, so it’s important to find the one that fits your ambitions.

M&A advisors take time to learn and understand your needs and the needs of your business. Therefore, rather than going on a hunch or being steered by buyers, you’ll be backed by professionals working to negotiate the best deal for all involved. Plus, it will add extra security not only on the valuation of your M&A transaction, but the long-term ramifications of the deal.

Leveraged M&A Buyouts

A leveraged M&A transaction is where the company is purchased by the buyer with a combination of debt and equity. Usually the acquired company’s cash flow is used to secure and repay the borrowed money. This deal structure is often used by private equity firms to fund their transactions, although strategic buyers use it as well when necessary.

The support of an M&A advisory firm will help realize leveraged buyouts that achieve the most value for your exit and ensure that your company has adequate cash flow to cover the debt.

Management Buyouts

Management buyouts need to be carefully constructed so that the exiting business owner is ensured of full payment over time. The sad reality is that many entrepreneurs, without professional guidance of M&A advisory firms, often accept management buyout structures that require up to 90% of the value paid to them over a 5-10 year time frame.

If the business takes a turn for the worse (or if the new owner-managers are not capable), future payments can be at risk. Working with strategic M&A advisors experienced enough to craft deal structures will help to protect your interests in these scenarios.

Divestiture Strategies

Quite often business owners have extensive holdings in multiple companies and industries. Most of the time they have divestiture needs in order to cash out some holdings and retain others. This is especially true of Family Offices that need to divest them of specific companies in industries that they no longer have interest in operating.

An experienced M&A advisory firm will be able to assist in setting up limited auctions for each holding and in some cases, dividing companies up into separate entities in order to obtain the best deal.

Minority Equity Transactions

Also known as partial sales, minority equity transactions are usually structured so that the seller is allowed to retain a minority equity position in the company, while receiving payment for the equity transferred to new owners. This is a great structure if you are willing to stay with the newly recapitalized business for an indefinite period of time.

It allows you to participate in a “second bite of the apple” when the much larger entity is sold (or taken public) at a later date and you have experienced M&A advisors to guide you through the process. Typically equity firms “bolt” these partial sale transactions onto their existing platforms in order to grow the platform company (as we highlighted in an earlier section).

Sell-Side Transactions

M&A advisory firms usually work on either the sell-side or the buy-side of transactions, while some work on both. Our focus is on sellers, where our clients are all privately held business owners looking to achieve the exit that fulfills their goals. (According to Thomson Reuters M&A rankings, no sell-side, lower middle market M&A firm has closed more transactions than our firm over the past decade)

This is the type of M&A firm you want to work with - these firms won’t take fees from buyers to sway their decision, and gives you the added confidence that the advisors are focused on your needs alone.

If you’d like to learn more about the various steps in the M&A process, and how to complete each one effectively on your journey to maximizing your exit, join us at a complimentary executive conference led by our experienced professionals.

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Why should I hire an M&A advisor?

The role of an M&A advisory firm is to make your exit as seamless and successful as possible. For most business owners, this is one of the most fundamental moments in their lives, the culmination of years of hard work and perseverance. An M&A advisor (and often a whole team) recognizes the importance of this transition to you, and offers the knowledge and practical experience to realize the most effective exit.

The bottom line is this: business owners that do not use professional guidance during an M&A event are at a serious disadvantage.

Since most entrepreneurs only sell one company in their lifetime, and the best way to learn about the intricacies of the process is via experience, they are at a severe disadvantage when dealing with professional buyers, many of whom complete several acquisitions annually. Receiving trusted M&A advisory services evens the playing field, and helps you feel more assured during throughout the process of exiting your company.

Obviously, it will be a greater expense to bring an M&A advisor on board than leading your own exit. But that is a classic example of short-term thinking. Yes, you save a few thousand initially, but not having the expertise or experience of a tested team in your corner could cost you significantly more when it comes to finding buyers, completing due diligence and negotiation the sale of your company.

Below, we’ve listed 7 advantages that hiring an M&A advisory firm to guide your exit offers over attempting this challenging process alone.

The Advantages of Hiring an M&A Advisory Firm

  1. M&A firms have been through the process many times before

    As noted above, most business owners will only exit one company in their lifetime. How many things were you incredible at the first time you tried it? While there are anomalies out there, and many entrepreneurs have a significant amount of experience in negotiations, nothing can adequately prepare you for the M&A process if you haven’t been through it before.

    Having an experienced dealmaker by your side will help you keep a long-term perspective on your eventual transaction because odds are good that your dealmaker will have encountered nearly every possible pitfall to closing that is possible. You don’t want to “learn on the job” when it comes to exiting your most important asset.
  2. You save valuable time that is better served elsewhere

    Even if you feel confident enough to enter the M&A process single-handedly, the time requirements can be a significant downfall. Something business owners contemplating an exit need to keep this in mind: time won’t stop for you to focus on your exit - you still have a business to run!

    You need to keep driving revenue, watching expenses, negotiating with clients, hiring talented folks, and ultimately ensuring that you are reaching your projected financial results in the fiscal year of your sale. The biggest killer of M&A activity happens when a seller advises a buyer in the 11th hour that the projected numbers are off YTD 15%.

    Right now, you are most likely spending 100% of your working hours managing and leading your company. Most of your time is focused on making major decisions that affect your company’s growth and future. It will take up to 1,000 hours of your time over a 9 to 15-month period to devote to the M&A process. That is 1,000 hours taken away from running your company. An M&A advisory firm reduces this time commitment, and can help minimise the time spent securing your exit.

    1000 hours of your time
  3. They help you source more varied, interested buyers

    In a previous section outlining the M&A process, a limited auction was a key component in maximizing the value of your exit. Business owners that have little or no understanding of M&A will likely presume that when they do exit, it will be taken over by a family member or a trusted employee, or acquired by one of their key competitors.

    If you approach one buyer, the one you assume is your buyer, you are not creating a limited auction for your business. Billy Fink, the former editor of Axial’s Forum, explains this point well:

    ““A key determinant of the seller’s bargaining power is the number of competing bids it receives.” Like supply and demand, “a seller has more negotiating leverage when a prospective buyer believes that it is competing with other bidders.” An M&A advisor helps drive acquisition premium by driving competition.”

    Could you create an actual limited auction on your own? Possibly, although it’s unlikely. We say this because we employ a database in excess of 34,000 buyers who update us regularly on what they are looking for in an acquisition target. The breadth of opportunities offered by an experienced M&A advisory firms helps you choose the right offer for your needs and build your company’s value.
  4. Buyers prefer companies that work with M&A advisory firms

    This might sound counterintuitive with the reasons we offer about how M&A advisory services help maximize the value of a seller’s exit. Surely buyers hate us for making them spend more money? Well, in reality, buyers prefer the support M&A firms provide to smoothing the process and minimizing the chances the deal will fall apart at the 11th hour.

    Here’s the scoop: buyers recognize that sellers who hire an M&A firm are far more committed to actually selling because they have “skin in the game.” In addition, buyers will feel more confident that sellers are prepared to enter negotiations, will have a realistic idea of the valuation of their business, and the M&A advisor will speed up the negotiations and overcome hurdles along the way more succinctly.

    So, while buyers probably aren’t happy that M&A advisory firms like our team cost them more to acquire a company, it saves them a commodity they have very little of: time. And, they don’t want to go through the process of negotiation a merger or acquisition only for the deal to fall apart in the closing stages.
  5. They help you recognize issues that need to be addressed in your company

    It is rare that a privately-held company will be ready for a transition to new ownership the instant the owner decides to sell. Many need preparatory work that can take time to complete, particularly with the due diligence that must be conducted along the way.

    M&A business advisors can see common issues that can (and often will) negatively impact a company’s valuation, including:
    • Excessive owner dependence
    • Significant customer concentration
    • Lack of adequate financial reporting/controls
    • Very little (if any) repeat business
    • No middle management
    • Very little documentation regarding processes/programs
    • Lack of strategic planning and foresight

    While individually, none of these are deal breakers; what they do impact, however, is the time it takes to close a deal and the ultimate valuation paid by the buyer for the business. An M&A advisory firm gives you guidance to address these issues early in the process of exiting, so they don’t leave a negative impact.
  6. M&A advisors offer incredible support at this emotional time

    As we highlighted in the introduction of this piece, the decision to exit your company often leaves a significant strain emotionally. The minefield business owners have to navigate, as well as the time devoted to each step and ramifications for the future can be a lot to handle, especially if you’re going through this only once in your lifetime.

    As much as we would like to make the decision to exit your company a “scientific” exercise, the idea can be extremely emotional for many business owners, especially if the business has been in the family for multiple generations. The clan’s ongoing legacy and association with the company and community might be at stake.

    Working with an M&A advisor that has walked this journey with many business owners in the past helps alleviate some of the emotional burden, gives you experienced counsel to lean on, and gives you round-the-clock support during this crucial stage of your career and life.
  7. You have a better shot of maximizing the value of your business

    Ask yourself, do you know how to successfully negotiate a premium above book value for your company? Most buyers will simply look at the value of the assets on your balance sheet and use that as the starting point of negotiations. If you fall for that trap, you are already in danger.

    In most cases, the true value of your company is in its future earnings, not its fully depreciated assets on the balance sheet. The key is being able to present this to buyers. That is where an M&A advisor’s knowledge and diligence can be an incredibly valuable asset.

    Does an M&A advisor truly help business owners secure higher premiums? Research conducted by several experienced professors between 1993 and 2010 suggests it does:

    “We find that private sellers receive significantly higher acquisition premiums when they retain advisers. Our estimates of the magnitude of this effect range from about 6% under matching methods to about 25% in treatment effect or switching regressions.”

    Therefore, to give yourself the best chance of securing an optimal offer for your company, hiring an M&A advisory firm is the smart option.

Are these advantages worth the cost of an M&A advisory firm? 

Unfortunately, despite the numerous advantages that an M&A firm provides to support your exit process, many will get stuck on the initial price point. Like all decisions you make, you can go cheap and “hire” your Cousin Larry who has a real estate license but has never sold a company in his life. Or, you can find a local M&A broker who may sell 1-2 companies a year and conducts most of his marketing at the local country club over gin and tonics.

So, you’ve saved a few bucks upfront, but risk losing significantly more at the other end of the transaction. If you want a truly experienced team to represent you, one that will be with you through the entire exit process from the initial business evaluation, the creation of value building/enhancing strategies, development of a thorough list of buyers, and representation at the negotiating table, you need to invest.

Axial have offered guidance of what you can expect to pay for professional M&A advice:

To work on your behalf (known as a “sell-side engagement”), an intermediary can be engaged under a retainer fee, a success fee, or a combination of the two methods. Retainer fees, also known as work fees, typically start at $50,000 and go up depending on the size of potential transaction. Some retainer models involve a monthly installment ($3,000 to $15,000), while others are arranged for a term at a flat fee.

The success fee percentages can be structured in several ways. On smaller deals, the success fee may be a flat percentage — usually 6% to 12% — of the transaction. On large deals (over $50 million), that flat percentage can drop to as low as 1.5%. The workload required by an intermediary to close a deal does not differ tremendously based on the size of the transaction, and actually can be less work for larger companies considering the increased access to resources.

Our business model is very similar to this but, unlike many M&A intermediaries, we deduct the cost of the initial retainer from the seller’s eventual success fee. (Our only exception exists in California where state laws do not permit this, so in California we adjust the success fee at the end to account for this)

At the end of the day, you get what you pay for. You can go cheap and hope for the best or you can invest in your success based on the track record of the M&A firm you hire. And, the better the track record, the more confident buyers will have in your commitment to exit. It’s all about choosing the right M&A firm that helps you achieve an exit for an optimal return, making the initial investment more than worth it.

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How to choose the right M&A Advisory Firm

Of course, simply bringing an M&A advisory firm on board is not enough to guarantee a premium offer for your business - you need to find the right one.

Entrepreneurs do not just benefit from hiring M&A advisors, they greatly benefit from hiring a “top-tier” firm. The bargaining power, the ability to negotiate with buyers from a position of experience and the knowledge that the M&A firm has access to thousands of buyers, balances out the power in the negotiations. This assurity is something only the top M&A advisory firms can offer.

How does one measure “top-tier”? The best way to do that is to use a third party, like Thomson Reuters who tracks M&A transactions, and examine their annual rankings. If you do this, you will find that the our firm has been ranked No. 1 for deals closed up to $25 million for the past several years and rated highly for valuations up to $100 million along the same timeline.

When choosing an M&A advisory firm, you want to assure yourself of the following:

Choosing an M&A Firm – Checklist

What is a boutique M&A Advisory Firm?

A boutique M&A advisory firm is one that specializes in a particular industry. Typically, they will only work with sellers that work within this industry, and buyers will also be based in this sector. This might sound ideal on the surface - surely you’d want an M&A advisor that understands my industry better than anyone else, rather than work with a “generalist”. 

Here’s an interesting statistic from BCG’s 2017 M&A report:

“Approximately 70% of all tech deals in 2016—9 percentage points more than in 2012—involved buyers from outside the tech sector.”

Cross-industry transactions is an M&A trend that is here for the foreseeable future. This is usually down to a strategic decision to invest in an industry that is complementary to the primary business of the acquiring firm. You can bet that the dealmakers involved played a key role in using their cross-industry experience to find the optimal synergistic buyer for their clients.

This isn’t to say boutique M&A advisory firms can’t be effective. But, it often pays to explore every avenue available to you. Having access to a diverse group of tens of thousands of buyers across all industries is a huge benefit that boutique, industry-specialized M&A firms cannot provide.

M&A Advisory Awards

Furthermore, when deciding who would the best M&A advisory firm for your needs is, looking for an award-winning organization can be an effective mark of quality. For instance, The M&A Advisor is widely considered the benchmark for dealmaking excellence. It recognizes the leading transactions, restructurings, deal financings, products/services, M&A brokers, firms and professionals, all based on peer review. 

We are proud to have won and been nominated for numerous awards presented by The M&A Advisor and other organizations, including Investment Banking Firm of the Year in 2016, 2017, 2018 and 2022. Several of our awards have also been based on the successful completion of transactions across a range of industries and price points.

Choosing to work with an M&A firm that has a strong track record and is recognized by their peers as among the best in the industry is an effective guide to finding the right team to support your exit.

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Generational Equity: The M&A Advisory Firm that’s with you every step of the way

We hope this has given you a stronger understanding of what M&A is, the process behind it and the reasons for hiring an M&A advisor to support your transaction. It’s important to keep in mind that this will be one of the most significant investments you ever make, as it directly influences the success of your exit from your company.

Achieving an optimal offer gives you the ability to enjoy life after business with those you care about most, and reap the rewards of the effort spent building your company. It would be a shame to devote that time and resources across your career, only to miss out on the maximum value because you didn’t have the right guidance or support during your exit, like a world-class sprinter just missing out on gold because he didn’t lunge forward at the right moment.

If you’re ready to take the next step in your journey and move beyond your business, we are here to help. As a highly-experienced M&A advisory firm, our professionals have an extensive understanding of the exiting process, making sure each stage is completed professionally in pursuit of an optimal offer.

Our firm has sold more middle market businesses than anyone in the last decade for a reason. Our professionals will help guide you through each stage and structure a deal that meets your future needs. If you’d like to learn more about our diverse M&A advisory services, contact our team to find your path.

Interested in learning more about the M&A process? Our complimentary executive conference provides incredible insight into exiting a business, from determining when M&A activity is at its peak to determining the ideal buyer for your company. Secure your place at our next conference in your area and discover what it means to Sell Smart.

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I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.
Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
After attending a conference with GE, I decided that the value they bring would be worth the expense and as soon as I started working with them, I realized that was the right decision. When we started to get LOIs, Fred Zweifel took the lead on the communication and supported negotiations throughout the process, which got tricky as we moved forward. I learned that it can be common for companies to make a great offer then work to erode that price with their discoveries, but Fred and the GE team kept that from happening.
Caroline Connelly, CEO, OptoTest
Through the sale process, Generational brought in several interested buyers and we closed in about 6 months. I am so glad I accepted that invitation to the conference and could not be happier with the whole process. The team at Generational coupled with their knowledge and guidance was so valuable that in the end, I know I could never have done this on my own!
JoAnn Ellis, Owner of Fondren 5 Star Kennels
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.
Rick Greene of Dobbs Equity Partners LLC
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.
Bryan D. Horn, Owner, Over Under Clothing
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.
Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
Betty L. Brennan, President, Taylor Studios
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!
Eric Erlandson, Owner, Action Fastenings, Inc.
The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.
Salvo Stoch, Founder and CEO of Sleeping Partners
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.
JoAnn Ellis, Owner of Fondren 5 Star Kennels
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.
Shane and Johanna Kline, Owners of Vision Upfitters
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward.
Tom Currier, Former President & CEO, Rackmount Solutions