Selling a business is a complex undertaking. A good M&A Advisor has the knowledge and experience to manage the process, which requires ability in multiple disciplines including accounting, finance, taxes, law, business improvement, valuation, marketing, sales, interviewing, written and verbal communications, negotiations, customer service, real estate knowledge and collaboration with other professional advisors.
1) They should have several years of M&A experience and should have completed several business sale transactions.
2) They should be working full-time in the M&A industry.
3) At the appropriate time, they should be willing to provide references to past seller clients.
4) They should be willing to spend several hours talking with you (at no charge, with no obligation) to gain a better understanding of your situation, your goals and your business, and provide you with insight into the process of selling your business. As a result of such a meeting, the advisor should be able to identify some of the obstacles you might have to overcome to successfully sell your business.
5) Many will provide an opinion of a business’ value at no charge and with no obligation. To do so, expect to provide 3 – 5 years of financial statements and/or tax returns, as well as year-to-date financial statements for the current fiscal year. A good Advisor will create an analysis of financial performance taking into account many factors. They should be able to explain the methodology so you have a full understanding as to how the opinion of value was calculated. They should identify obstacles that need to be considered and possibly addressed, while also discussing ways to increase the value of the business. If done properly, the information provided is extremely useful and valuable to a business owner. Despite the tremendous value, many M&A Advisor will provide this service for no charge to facilitate a long-term relationship with a prospective seller.
6) Most M&A Advisors work with their clients on a straight contingency basis with a small fee due upon signing an agreement. Fees are typically in the range of 4% to 8% of the selling price driven by the enterprise value of the business. A good M&A Advisor will require an “exclusive” agreement for a period of 9 -12 months.
7) A good M&A Advisor will inform you of the importance of confidentiality and the steps they take to assure confidentiality. Keep in mind, intermediaries obtain non-disclosure (or confidential information) agreements from prospective buyers before releasing the seller’s company information to them. Many times business owners create their own confidentiality issues by telling other people they are selling their business. Once you make the decision to sell, don’t tell anyone!
8) A good M&A Advisor will qualify buyers based on experience, technical and financial capabilities. The extent of the qualification process depends on the quality of the intermediary you choose! Much depends on the nature of the business and the likely profile, including required financial capabilities, of the buyer. If the screening is too tight, you may lose a qualified buyer. If it is too lax, you may be exposing your business to people who have no ability to acquire the business and they should be able to explain their prequalification process/philosophy.
9) A good M&A Advisor will explain the marketing plan for the sale of your business to you. At a minimum, it should include a comprehensive “Executive Summary” that will be the primary marketing piece provided to prospective buyers after they sign a non-disclosure agreement. Understand that good M&A Advisors post only “blind descriptions” of companies they represent.
10) A good M&A Advisor should understand business acquisition financing, including SBA loan standards / qualifications, private equity and other capital markets. It is typical for every type of buyer to require the seller to have some skin in the game.
11) A good M&A Advisor should always maintain his/her personal integrity and perform to a high standard of moral ethics, advising the client to do so as well.
12) A good M&A Advisor does not pressure a prospective seller to make an immediate decision to sign a representation agreement. The decision to sell a business should be a process.
You should expect “tough love” from your Advisor. After completing an evaluation of your business, an experienced M&A Advisor should be able to tell you, in terms you can understand, and within about a 5% range, how much your business can be expected to be sold for. He also should be able to explain the obstacles (prospective buyer’s objections) that might be encountered and how you can counteract them.
If, in the process of considering an Advisor, you get the feeling the broker is “playing to your ego” or “blowing smoke,” run the other away – fast. The Advisor is not helping you set realistic expectations, is setting you up for disappointment down the road and is not likely to succeed in selling your business. They will waste your time, their own time and the time of any prospective buyers that take the time to consider the business. Most qualified buyers will not even look at businesses if they sense the existence of unrealistic expectations and/or major obstacles without solutions.
