Divestopedia is proud to be a media sponsor for the Alliance of Merger and Acquisition Advisors' (AM&AA) 2013 Summer Conference. Divestopedia and AM&AA are committed to helping business owners select a financial advisor of the highest caliber.
There are a lot of negative perceptions around the credibility of professionals involved in the sale of a business. The stereotypes rival those of used-car salesmen or crooked politicians. But let's face it: we've all heard stories that make us question the integrity of those who work in mergers and acquisitions. Most of them go something like this:
A business owner is invited to a private seminar on how to sell a business. At the event, a fast-talking presenter promises the attendees that he has a number of buyers ready to pay significant premiums for their businesses. The owners are, understandably, intrigued and want to learn more. These so-called advisors engage a number of company owners and charge significant upfront fees for the preparation of a book, or a "confidential information memorandum" (CIM). The book is voluminous, but usually does not adequately capture the value proposition of the business in question. The CIM is sent to hundreds of buyers and listed on various "business for sale" websites. There is little thought put into the quality of any prospective buyers this generates. If a potential buyer inquires about the opportunity, these intermediaries will make an introduction but may not provide much support to get the deal closed. In many cases, business owners get frustrated with the process and fire the advisor – only to learn that there is a two year fee tail written into the agreement. This means that if a deal is consummated with any one of the hundreds of prospects on the "buyers list" over the fee tail period, these individuals will still earn a full commission. This will usually preclude the seller from finding another credible intermediary to help with the sale of the business, at least over the fee tail period.
Sounds terrible, right? It is. But it happens all the time. Recounting a scenario like this makes our blood boil. In fact, it's one of the reasons we started Divestopedia. We strive to create a resource to educate entrepreneurs on how to monetize their biggest and most valuable asset: their business. This also includes connecting business owners with M&A advisors who are capable of bringing a significant amount of added value to the sales process.
So how can you choose a good M&A advisor, one who will work in your best interest? Here are some tips on what to look for.
Sizing Up M&A Advisors
There are two major areas that should be assessed when selecting the right M&A professional to help with selling your business:
1. Experience
Experience counts, especially in M&A. The number of deals that an advisor has worked on, the number of assignments he/she has led and the number of successfully completed transactions are all important considerations when it comes to assessing prospective advisors. No two deals are alike, so the more experience an advisor has, the more prepared he/she will be to navigate the roller coaster ride of completing a transaction. To find out if an M&A professional has the right kind of experience, sellers should ask the following questions:
- What deals have you closed (not just worked on) in the past two years?
- What was the financing structure of those past deals?
- How do you increase value and improve the terms of a transaction? (Sellers should ask for specific details here.)
- Who were the buyers in past transactions and how did you find those buyers?
- What transaction size and industries have you been involved in?
- How would you market my company?
Also be sure to ask for references on deals that any advisors you're considering have closed. You should also ask for references on deals that didn't close at all. Professionals who are hesitant about providing references or are unable to answer the questions above probably aren't worth your time.
2. Accreditation
The designation that M&A professionals hold demonstrates technical competency and a commitment to continued learning. One designation that has emerged as the gold standard of excellence in middle market corporate financial advisory is the Alliance of Mergers & Acquisitions Advisors' (AM&AA) Certified Merger & Acquisition Advisors (CM&AA) certification. Advisory professionals, including MBAs, CPAs, CFAs, attorneys and other experts, undertake a week-long program and examination to obtain the CM&AA title. During the process they learn:
- An overview of the private capital marketplace;
- The dynamics of an M&A engagement;
- Buy- and sell-side representation;
- Traditional investment banking best practices;
- M&A standards, accounting and finance;
- Traditional business valuation and transactional valuation;
- M&A legal and tax issues; and
- Acquisition and growth financing.
This designation, along with the proper experience, are good indicators that a professional has the necessary tools to execute the sale of your business, and do it well. Learn more about the CM&AA and joining the organization on their website.
Divestopedia's M&A Advisor Directory
Divestopedia has created a directory of M&A professionals across North America. This directory allows entrepreneurs to review the expertise of M&A advisors working in their region, industry or with transactions of a similar size. It also allows advisors to highlight their unique backgrounds and credentials.
If you're an entrepreneur, your business is probably the most valuable asset you own. As a result, selling it will probably be the single largest transaction that you will ever be involved in. Don't take chances with inexperienced advisors. Find the best ones that will help you maximize value and do a deal on your terms.