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The Top 5 Questions to Ask an M&A Advisor Before You Hire Them

The Top 5 Questions to Ask an M&A Advisor Before You Hire Them

Deciding to hire an M&A advisor to sell your company is a big decision.  This is likely to be a once-in-a-lifetime, life-changing transaction, so you want to be represented by the person or firm who will work the hardest to get you a deal that meets your needs – financial and otherwise.

  1. Is a transaction of this size the right fit for your firm?

If your deal is much smaller than the typical deal the M&A advisor handles, then you may find that your transaction, which is critically important to you, ends up at the bottom of the M&A advisor’s priority list.

  1. Who will be managing my transaction, and how many transactions are they working on at once?

In larger firms, there may be junior staff who will do some of the heavy lifting in terms of financial analysis, writing the marketing materials, and researching buyers.  But you want to be sure that a partner will be doing the buyer outreach and be the primary point of contact for all buyer discussions.

You also want to know that the partner has time for your deal – if they’re working on more than 4 deals at once, your deal may not get the attention it deserves – especially if your deal is smaller than they typically work on.

  1. How many and what kind of buyers will you target?

If the advisor tells you that they have personal relationships with the top 5 or 10 buyers in your industry, so they’ll find one of them to buy your company – move on to the next guy.  The truth is that none of the top 5 or 10 may be in a position (or have an interest) to acquire your business at this time.  And if the advisor sells companies to this same group of buyers all the time – is his or her top priority really getting you the highest price?  Or is it keeping a good relationship with the buyers?

Another thing to consider is whether buyers outside your industry may be willing to pay more for the strategic value you’re bringing to them.  If the advisor doesn’t ask, you’ll never know.  You can get further insight into my opinion on buyer lists in last month’s blog post “Selling Your Company: The Top Three Reasons You Want a Broad Buyer List.”

  1. How do you keep me informed about progress?

As the business owner, it’s critically important that you keep your eyes focused on running the business during the process of selling the company.  The number one reason businesses fail to sell is because their performance starts to decline during the sale process, because the owner is focused on selling, not growing.

That being said, it’s hard to focus on your business when you’re wondering what your M&A advisor is doing, and if anyone at all is interested in your company.  So be sure that the advisor has a plan to keep you informed on a regular basis, while protecting your time so that you can keep your focus where it belongs – on continuing to grow your business.

  1. How much do your services cost?

Sometimes business owners are afraid to ask this question – somehow it seems rude to ask how much a professional service costs.  However, this is likely to be the largest transaction of your life – and the fees are likely to be the most expensive service you’ve ever paid for as well.  So ask the question – you don’t do yourself or the advisor any favors if you wait to get a proposal from them weeks later, and then discover their services cost twice as much as you expected.

In general, most M&A advisors have some kind of upfront fee – sometimes called a valuation fee, a marketing fee, or a retainer – that may get paid when you sign their engagement agreement, or over a number of months.  If an advisor tells you that they’ll take your engagement on without an upfront fee, I humbly ask you to consider if they’re going to give your deal the attention it deserves.  It may sound great that they don’t get paid until you get paid, but in reality, what that means is that they’ll focus their time and attention on deals that are easy to close.  The minute your deal gets difficult, your deal becomes their last priority.

When your company sells, there will be a success fee paid at the closing that’s calculated as some percentage of the sale.  Every business broker, M&A advisor or investment banker calculates their fees differently – there’s no such thing as an industry standard.  However, your M& A attorney (yes, you need a specialist attorney who’s an expert at getting deals done) can tell you if the fees proposed by your advisor are within “market.”

Do you have any other questions about how to select someone to sell your company?  Contact me, and I promise a sales-pitch-free, honest conversation.

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