What Does Merger and Acquisition Advisory Firm (M&A Advisory Firm) Mean?
Merger and acquisition (M&A) advisory firms are companies that provide guidance to other companies that intend to buy, sell or restructure their firms. Just as personal financial advisors provide guidance to individuals and small businesses, M&A advisory firms can help to steer a company through any type of corporate transaction as well as assist with debt and equity financing in many cases. M&A companies can also assist with other tasks, such as:
- Providing advice and guidance on the issuance and placement of stock
- Performing underwriting for new securities that are being issued
- Providing investment advisory–related services for individuals
- Calculating an accurate valuation for the company
- Getting the highest possible price for the seller
- Showing the company to prospective buyers
- Preventing the company from being sold at below fair market value
- Finding the best possible buyer for the seller
- Ensuring that the sale transaction is completed, even if contingencies arise — such as the buyer being unable to acquire the necessary capital to fund the deal
Most M&A firms charge a fee based on a percentage of the value of the deal being consummated. This fee can vary with the type of transaction being performed and the size of the deal. Some firms may also assess a flat retainer fee on top of the percentage fee.
M&A advisors generally cover transactions that are too large for most business brokers, with the transaction cutoff value being about $2 million or less than $1 million in EBITDA. They work on deals between those values and the medium and larger-sized deals for $100 million or more, which are usually handled by investment bankers. M&A advisory firms are therefore generally sought out by companies with annual revenues in the $5 to $100 million range. They generally take more of an active rather than a passive role in engineering a sale.
Divestopedia Explains Merger and Acquisition Advisory Firm (M&A Advisory Firm)
Firms that provide M&A advisory services are typically classified as a business broker, middle market firm or bulge bracket investment bank. The differences in these firms are:
- Business brokers work with smaller clients and provide representation on transactions with values typically less than $5 million.
- Middle market firms focus on transactions of companies with an enterprise value between $5 million and $75 million.
- Bulge bracket investment banks normally work on transactions greater than $100 million, unless there are reasons to work on smaller-sized transactions, such as a roll-up strategy for a client.
Most M&A advisory firms are not securities licensed, which relegates them, in most instances, to middle-sized transactions at most. Larger deals are handled by investment banks that carry these licenses, so M&A firms are generally excluded from this category. But M&A firms handle deals too large for most business brokers to handle, and the way that they usually establish the values of their customers is more complex than the methods typically used by business brokers. While business brokers usually base value on simple factors such as sales, location and profit, M&A firms can value a business by its strategic potential targets, required investment analysis, valuation of intellectual assets and potential future growth.
The 2018–2019 M&A Fee Guide indicates that mergers and acquisitions firms can provide the greatest amount of value to their customers by managing the entire transaction process from beginning to end. They can also prove their worth through their ability to negotiate the terms of the deal, finding quality buyers and minimizing the myriad distractions that can arise during this type of deal. They can ultimately help to establish the credibility of the seller in the market.
M&A firms resemble investment banks in many respects, but they tend to be more boutique in nature and work most often with privately owned companies. Publicly traded companies tend to use investment banks for their transactions.