M&A Advisor

Do M&A Advisors Add Value?

Billy Fink, Marketing Manager at Axial just published a great article in LinkedIn entitled “M&A Advisors Proven to Improve Valuations“.

He states that advisors, 1) create competition in the sales process, 2) are more important in private transactions and 3) provide extra-valuation benefits.  And he is exactly right — a good M&A advisor should create far more value to the seller than the fee paid.

This opens up another area for discussion:  What is the proper role for third-party advisors when growing & ultimately selling a business?

You’ve probably met the CEO who insists that he/she can do the accounting, corporate legal reviews, raise money for the business, be the H/R director and find the right buyer for the business.  If you’ve met this person, you know that this CEO is wasting precious resources.  Even if the CEO is multi-talented, if doing the accounting is his/her best use of time, then the business has real problems.

Mr. Fink’s article hits a cord with M&A advisors.  I’ve met lots of CEOs who think they will “save money” by doing it themselves.  What typically happens is that business is never sold, or if it is sold, a LOT of money has been left on the table — yet the CEO “saved money”.

I would suggest that there also could be a role for a “trusted advisor” or “CEO mentor” to take a business to a size and valuation that the CEO may not be able to achieve on his/her own.  I’ve written before about a business whose CEO retained me in 2012.  His business had been flat between $10-12m in annual revenues for five years.  I suggested that we partner to double or triple the business and sell it in three years.  He thought I was crazy, but ultimately agreed.

Result?  Two years later the business did $23 million and we have more than tripled his equity value.

As part of this work together, we got the company ready for sale (most CEO’s have no idea how to position a company for sale).  We are now working an LOI to sell a majority interest, while the client will remain CEO and have the capital to double the business again.

Let me state this flat out:  the CEO is exceptional.  Yet this exceptional CEO plateaued and it took a third-party mentor to show him how to develop the business to the next level, get it ready for sale and execute on the transaction.

For every $1 he spent on this arrangement, he’s made $10.  Do you think he worries about how much he will pay in fees?  Don’t think so.  He has accomplished something in the business he started that he thought he would never achieve.   Net result is a great pay day and he is so energized in his business today that he’s excited about doubling it again with his new partner.

If you’re a CEO that intends to sell some or all of the business, I highly suggest that starting 2-3 years before a sale will give you the opportunity to dramatically increase the value of your business.  The right advisor can add a lot of value.