The question arises with nearly every potential client we meet with: Why do I need an M&A advisor to sell my business? Can’t I just do it myself and save a significant amount of money in fees? How hard can it be to close a deal with a buyer? I negotiate contracts all the time with my clients and vendors.
And the answer is always the same: You can sell your company on your own. Businesses change hands all the time without professional representation for either party. But going in you have to be aware that it will cost you in other ways if you go forth on your own. For example, you need to plan on spending at least 1,000 hours of your own time spread throughout 9-18 months to close a deal with an optimal buyer. This is an intangible cost that you will need to factor in order to adequately market your business.
But that is just one cost to you that needs to be considered. In reality the benefits of having professional M&A advice far outweigh the fees involved. According to PE Hub, a leading online publication that tracks the private equity world, here are a few of the benefits that an M&A advisory firm can bring you:
Investment bankers can add significant value in an M&A process…Typical benefits of having a banker in an M&A process include:
1) Having an agent to advise on market trends and valuation
2) Approaching potential acquirers with which the target’s executive management would not otherwise have contact
3) Taking the difficult, “bad cop” negotiating position
4) Co-managing the sale process with the target’s legal counsel
We would obviously concur with all of these. Each, individually, is equally important. But to this list I add one more: Hiring an M&A advisory firm allows you to focus on running your business while your advisor manages the M&A process.
As mentioned, 1,000 hours of your own time is typically required to close a deal. Hiring an M&A advisor will free those 1,000 hours up, allowing you to focus your attention on the company itself. And why does this matter? Because all buyers focus on one key issue when negotiating: How is the company doing in the current fiscal year? Are they achieving their projected revenue and profit goals?
Too many business owners who do not have representation make the mistake of ignoring the operations of the company while in market. Nothing can kill a deal faster than a buyer learning that the 10% projected growth shown in the pro forma for the base year is actually trending to be far less.
A scenario like this raises several red flags for buyers. First, it implies that the company is more dependent on the current owner than promised. If a seller is spending all of his/her time dealing with buyers and the company is suffering, then a buyer will have concerns that the trend will continue upon the eventual departure of the owner. The last thing you want to demonstrate to a buyer is owner dependence!
Secondly, it will call into question your entire 5-year pro forma projection. If the base year, the current fiscal year that you are marketing the company in, is off by a significant percentage, then during negotiations buyers will make adjustments to your future earnings as well and/or increase the discount rate used to calculate the present value of future cash flows. Either way, the ultimate valuation of your business will suffer and you will not only get less for your company, you may be required to stay with the business in the form of an earn-out for 2-5 years post-acquisition in order to reach pre-determined sales and earnings levels – which will dictate ultimately how much you get for your company.
These scenarios you definitely want to avoid. Why risk your financial legacy and most likely your family’s entire net worth by going cheap and not hiring an M&A advisor? The costs in terms of chips left on the table far outweigh the expense of an advisor’s fees. Don’t just take my word for it; listen to some of our clients who have reaped the financial rewards of hiring Generational Equity to represent them.
Hopefully by reading this article you have a better understanding of the value M&A advisors bring to middle-market companies. One final thought: For many of you the sale of your business will be the ONLY M&A transaction that you participate in in your lifetime. Do you really want to trust the success of the deal to a novice (you) vs. using a team of professional advisors like Generational Equity brings to the table?
No need to answer that question!
Carl Doerksen is the Director of Corporate Development at Generational Equity.
© 2021 Generational Equity, LLC All Rights Reserved
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
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
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.
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
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
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.
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 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
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
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
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
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.
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
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).Bil MacLeslie, CEO, ipHouse
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
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 would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
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
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.Betty L. Brennan, President, Taylor Studios
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.
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
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.
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
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
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. P.S. Given my experience with GE I felt comfortable enough to sign up with Generation Wealth Advisors!Tom Currier, Former President & CEO, Rackmount Solutions
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
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
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