M&A Advisor

By Admin admin on Mar 04, 2017

M&A Advisor

Merger & Acquisition Advisors, aka M&A Advisors, have long provided valuation professional assistance to buyers and sellers of small- to mid-sized companies. It’s been said that “We don’t do Main Street, and we don’t do Wall Street; we serve the middle market.” An M&A advisor may or may not be securities licensed depending upon the scope of their practice; they also may or may not be licensed real estate brokers or agents, depending upon which state(s) they practice in.

M&A advisors assist individuals, partnerships, corporations, and other such entities in buying or selling an ongoing business, typically through the purchase/sale of its assets. Like other professional service entities, M&A advisors come in different sizes and capabilities. While a larger firm may have multiple industry and product coverage groups, boutique (typically smaller) firms tend to specialize in one or a few industries, and/or geographies.

What You Need To Know

The selection of an M&A advisor with the appropriate specialization is critical to achieving your objectives. For small and medium sized companies, the below factors should be evaluated when selecting an M&A advisor, or M&A advisory firm:

Ready for Transaction?

Companies must be well prepared and have attained a degree of institutionalization to complete a transaction. Company departments including accounting, HR, legal, sales, marketing and operations must have documented policies and processes, as well as historical information.

Further, the quality of company earnings and, in many cases, growth prospects must be solid. Concentration of sales in a few, large customers, or in one or two products that are nearing the end of their life cycle will have a depressing effect on the company’s market value. Given enough time to prepare, these issues can often be resolved or at least mitigated.

If the owner is indispensable to the future success of the company, and/or has yet not developed a strong team of managers who can effectively run the business in his/her absence, the market value of the business will suffer. In extreme cases, the business may be unsalable. Again, given enough time to prepare, a stronger management can often be developed and the owner can comfortably delegate more responsibilities, increasing the company’s market value.

If certain key employees who may be critical for maintaining/growing sales with certain accounts, or product development, or manufacturing, or engineering, etc. have not be properly compensated and/or have not been properly engaged with an appropriate employment contract and non-compete agreement, this can also negatively impact a company’s market value. Again, given adequate preparation time, these deficiencies can be remedied.

If these foundational elements and others are not present, or the current value of the company is not acceptable, then care must be taken to work with an M&A advisor that is skilled in working with business owners to prepare the company for market. In some cases, where extensive preparation is required, or where alternative exit strategies need to be more thoroughly considered, the company should consider working with business growth consultant, or an exit planning consultant.

Right Specialization

Geographic Coverage
Depending upon your company’s state of readiness, and the amount of onsite assistance you may need: (1) to prepare the company for sale, (2) to meet with the owners to review the strategy and marketing materials for marketing the company, (3) to coach the owners and management team on the management presentation, (4) to host prospective buyers, (4) to review and negotiate specific offers, (5) to assist with due diligence, and (6) to assist in closing the deal, you should consider how well you will be served by a local or regional firm vs a national or international firm.

Industry Coverage
M&A advisors will often specialize in a few industries. The benefits of specialization are numerous including understanding industry specific drivers and dynamics, senior level relationships with industry participants and knowledge of financial buyers’ interests and appetites.

Transaction Coverage.
Almost all mid-market business purchase/sales begin with the seller seeking all cash in exchange for essentially all of the business assets, or 100% of the company’s stock. Occasionally, through negotiation between the buyer and the seller, the deal may morph to a structure that involves securities. Depending upon the details of each transaction, the experienced M&A advisor will have various approaches to handling these situations, and you should explore these alternative scenarios in some detail before engaging with any particular firm.

In cases where only a securities transaction can be considered, and therefore must be marketed as a securities transaction from the outset, the company will need to consider: (1) Engaging an M&A advisory firm that is affiliated with a licensed securities broker-dealer, or (2) Engaging an Investment Banker.

Senior Executive Attention & Resources

If your choice is largely based on the qualifications of a particular M&A advisor, make sure to confirm your will receive adequate involvement by that advisor versus an associate or other advisor.

Process, Responsibilities, Deliverables

Preparation of Confidential Investor Presentation and List of Prospective Investors
Once the Investment banker has created a Deal for a given securities offering, the banker will prepare, with significant client involvement and ultimately approval, a confidential investor presentation (“CIP”) for prospective investors. A CIP is sometimes referred to as the “book” in the industry. The CIP typically contains: 1. Detailed analysis of the marketplace including competitive overview, positioning and pricing; 2. Overview of the client’s sustainable competitive advantages and strategic growth initiatives; 3. Overview of the client’s challenges and areas for strengthening 4. Overview of key management and experience; 5. Presentation and analysis of historical and projected client financials; 6. Discussion of client’s capital structure, and; 6. Discussion of proposed financing.

Develop List of Prospective Investors
The investment banker will prepare a list of potential investors / buyers / sellers (“Prospects”). The investment banker will collect target Prospects from a variety of sources including 1. Internal databases; 2. External information service providers such as CapIQ, Pitchbook, BigDough; 3. Market research, and; 4. Other investment bankers and industry participants. For many segments of the investment banking market, the universe of Prospects is highly fragmented and constantly evolving. There are approximately 10,000 institutional investment capital groups (Venture, Private Equity and Hedge Funds), over 300,000 medium and large-sized, private and public companies and tens of thousands of high net individuals, investment clubs, family offices and equity sponsors in the United States. The investment banker’s challenge is to identify from this large universe Prospects that are most appropriate for the investment opportunity and the client’s objectives. Target Prospects typically possess a unique combination of financial capability, synergistic value with the client’s business, time-table alignment and willingness to largely meet or exceed the client’s market-based valuation expectations in respect to both price and terms.

Marketing of Investment Opportunity
In this stage of the transaction, the investment banker will develop and send to Prospects an executive summary (referred to in the industry as the “Teaser”) of the investment opportunity. The executive summary typically contains no confidential information about the company. A purpose of the executive summary is to elicit preliminary interest from the Prospects and, when properly qualified, to lead to the sending of the CIP after the execution of the confidentiality agreement. Following the delivery of the CIP, the investment bankers will further qualify Prospects to cull the list to a limited number of client management presentations.

Management Presentations
In this stage of the transaction, the investment banker will schedule a limited number of management presentations to highly qualified Prospects. The investment banker will draft the management presentation, will coach management through practice meetings and will anticipate questions and issues. Following the management presentations, the investment bankers will confirm interest and a broad range of pricing from the remaining Prospects.

Preliminary Diligence, LOI & Negotiations
In this stage of the transaction, the investment bankers will issue preliminary diligence data about the client to the remaining Prospects and will address Prospect questions not adequately covered in the CIP and management presentation. Typically, the Prospects will have follow-on conference calls with client management. At the end of this stage, the investment banker will request non-binding letters of intent (“LOI”) from Prospects outlining major terms of the proposed transaction. The investment banker and client will thereafter strategize as to the best approach to negotiate the terms and typically settle on an acceptable basis to select one Prospect to execute the LOI.

Final Diligence, Documentation & Closing
In the last stage of the transaction, the investment bankers will manage responses to detailed buyer diligence requests, will lead or assist in the negotiating of definitive documentation, will negotiate remaining unresolved issues between the client and Prospect(s) and, to the extent necessary, will identify and arrange, typically with the assistance of the Prospect, other required financing aspects of the transaction such as working capital line, equipment leasing, mezzanine debt, etc.