A few days ago, we referred briefly to a study published in 2016 that analyzed completed M&A transactions from 1993 through 2010 where the seller was a privately held company. The research, conducted by several professors, including Anup Agrawal, Tommy Cooper (University of Alabama), Qin Lian (Portland State University), and Qiming Wang (Willamette University), was comprehensive and detailed. Their conclusion was clear: Business owners that used professional M&A firms to represent them in the marketplace generated higher valuations for their companies than those that chose to find buyers without representation.
In fact, according to the authors, over half of the companies in their study did not use M&A advice:
A large proportion of private sellers do not hire M&A advisers despite having disadvantages in the M&A market relative to public sellers. In our sample of 3,281 acquisitions of private firms during 1993-2010, as many as 1,727 (or about 53%) private sellers did not use an M&A adviser. The decision by a large proportion of private sellers to not use advisers is interesting for several reasons:
I have taken the liberty of highlighting some of the key points above because based on our experience over the past several decades, we concur with these professors: 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. This means that most do not create a “limited auction” (as our deal makers specialize in) and, therefore, do not mandate top dollar when negotiating.
This is where M&A advisors “create significant value for their clients.” The reality is the Generational Group has a database of more than 34,000 buyers who update us regularly on what they are looking for in an acquisition target. Buyers are fully aware of their peers in our database and realize that they will most likely not be the only buyer bidding on a specific acquisition target. This creates additional demand for our clients, enabling us to obtain, more often than not, a premium value for their businesses.
The professors provide the following conclusion to their research:
We find that private sellers that hire advisers receive significantly higher acquisition premiums. Our estimates of the magnitude of this effect range from about 6% in matching models to about 25% in treatment effect or switching regressions. Among private sellers that hire advisers, we find that sellers that hire top-tier advisers receive higher acquisition premiums. Overall, our findings suggest that the hiring and reputation of M&A advisers improve the bargaining power and acquisition premiums of private sellers.
I have highlighted some of the more salient items. First, not only do entrepreneurs in general benefit from hiring M&A advisors, they greatly benefit from hiring a “top-tier” firm. Why? Because the bottom line of the study is quite simply this: Bargaining power, the ability to negotiate with buyers from a position of experience and the knowledge that the M&A firm has access to hundreds (or in our case, thousands) of buyers, balances out the power in the negotiations.
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 Generational Group has been ranked No. 1 for deals closed up to $25 million for the past several years and rated in the top 10 for valuations up to $100 million during the same timeframe. You can see their 2015 data here: Thomson Reuters 2015 M&A League Tables.
You can find additional year rankings by following this link:
Our ability to close deals, and generate higher valuations is key to our success. Here is how a few of our clients describe our work:
To find out if our top-tier M&A advisory services are a good fit for you and your company, please contact us using the number and/or link below:
And special thanks to professors Agrawal, Cooper, Lian, and Wang for publishing this leading research on the impact of advice on M&A transactions. If you would like to read their entire study you can do so here: Does Hiring M&A Advisers Matter for Private Sellers?
By Carl Doerksen, Director of Corporate Development at Generational Equity.
© 2021 Generational Equity, LLC. All Rights Reserved.
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.
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 quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.Jay Dinnison, Owner of Sharpe Mixers
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
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.
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
Dear Chris and Andre, I just wanted to say thanks for all your help. Even though this process was not an easy one, it was comforting to know that I had a capable team standing beside me. You made me feel like we were almost your only client or at least the most important one. Thanks again, and I will recommend your service in the future.Shenille Engelhart, Owner – CLS Technology
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
Bruce and I wanted to take this opportunity to thank Generational Equity for assigning Musa Jagne to our transaction. In Bruce’s words, “Musa did one hell of a job for us!”Karen S. Williams, CFO, BW Manufacturing
Generational Equity’s assistance was invaluable in compiling and marketing our business.Bil MacLeslie, CEO, ipHouse
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
We thank you Eric and Generational Equity making our dream come true.Larry Moore, Owner, A Company Portable Restrooms
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
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.Ralph Noblin, President of Noblin & Associates
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.
We will highly recommend Generational Equity and Musa Jagne to any business owner about to embark on the same process.Karen S. Williams, CFO, BW Manufacturing
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.
Tom Staszak is one of the most professional people I have dealt with in my last forty years of business. You’ve got a great group of people and you have built a truly professional organization.Michael J Polarek, President, Paragon Packaging
Thanks again Phil and feel free to have a future client call me if they would like a referral. You are a true professional!Andy Graham, Vice President, Modern Heating & Plumbing
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.Bil MacLeslie, CEO, ipHouse
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).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
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
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.
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 are extremely pleased with the way Generational Equity handled the sale of our company. Your associates, Tom and Chris, did an outstanding job of getting us (me) through the process.Michael J Polarek, President, Paragon Packaging
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