Part 1: Do I need an adviser?
Advisers either add cost or value. Most business owners will have never engaged a corporate finance or M&A adviser before, so are understandably cautious about whether their involvement will be beneficial, especially if they already have an offer from a buyer on the table.
In broad terms there are three key reasons why a good M&A adviser will always add value to a transaction that is many times more than the fees he will charge.
Finding the right buyer
When asked the question who might buy a particular business many people will start with direct competitors, perhaps coming up with half a dozen or so companies. In practice, direct competitors are not usually the best buyers and are unlikely to produce the best price. When researching potential acquirers we always focus on complementary businesses and companies from adjacent market sectors that may have a strategic rationale for an acquisition. An external adviser should be able to bring a wider perspective to the search for buyers and deploy personnel and IT resources and leverage personal contacts to research and qualify candidates that the business owner may never have considered.
M&A is an increasingly international business and even relatively small UK companies can attract the attention of overseas buyers. In these circumstances, having an M&A adviser with a large and effective international network is critical if you are to identify and contact the right buyer that will pay a premium for your business.
Even where a business owner has received an unsolicited offer there are considerable benefits to utilising the skills and resources of a good M&A adviser. Firstly, he should be able to benchmark the offer price and give a view on whether the valuation is a fair one or if a better price could be achieved from another purchaser. Also, he should be able to quickly search for and sound out other potential buyers, thereby ensuring the seller always has alternatives and maintains the upper hand in negotiations.
Experience counts
Company sales are a complex web of commercial, financial, tax, and legal issues. The headline price is only one element of the deal, and value secured through a high price can be easily lost in a poorly negotiated transaction structure or badly constructed legal agreements.
Having advised companies across a range of sectors on both acquisitions and company sales we have substantial experience in how to negotiate and structure an M&A deal that maximises value for our client and minimises the transaction risk. Most business owners will not have sold a company before and may well be up against larger, very experienced, and well-advised corporates and investors. Having an experienced M&A adviser on your side helps to even up the balance of arms and ensures the silver-tongued adviser for the buyer doesn’t get away with anything.
In addition to the deal negotiations, your financial adviser should bring an array of specialist technical knowledge that will be needed to finalise the deal, such as corporate and personal tax advice and the skills to construct the optimum mechanism for dealing with earn-outs and completion accounts.
It’s a long slog
When a business owner shakes hands on a deal with a potential buyer it is tempting to think all the hard work has been done. In fact, this is just the start and getting the deal completed involves a huge amount of detailed work in managing the purchaser’s due diligence, checking legal documents, dealing with the tax authorities, regulatory clearances, and a dozen other urgent tasks – and there is the minor issue of running the business too!
A good M&A adviser will not just leave you to get on with it, but will continue to support and advise you all the way through to the final completion meeting. By managing a large part of the sale process, the financial adviser frees up his client to focus on the key deal issues and in managing the business day-to-day. The importance of the latter point should not be under-estimated because if the business performance dips during the due diligence and legal stages the buyer may use this as an excuse to re-negotiate the deal.
For help and assistance in selling your business contact our experiences corporate finance team on 0845 177 5500, using our on-line contact form, or contact Simon directly:
Simon Chapman
Corporate Finance Partner
T: 07831 255302