Understanding the steps to sell your business is relatively simple, but knowing how to increase its value and present your business to different investors is something else entirely.
The role of a financial advisor in an M&A process basically comes down to:
- Marketing your business to different potential investors
- Negotiating the sale on your behalf and defending your interests alongside the other advisors involved
- Achieving the best possible outcome for you, the seller, in terms of price and general terms
Selling your business isn't a standard process that takes little time. There are many decisions to make, and trying to do it while the management team keeps running the business day to day is practically impossible. This is one of the main benefits of working with advisors in M&A processes, since they make sure executives don't get distracted and can keep managing the company, avoiding the loss of customers, talent, or money in the meantime — these are key factors that can affect the final valuation.
When is the best time to bring in a financial advisor?
Ideally, we'd like to involve an advisor from the very beginning of the deal, when you're still deciding whether or not to go ahead with the transaction. Obviously, no two deals are alike, and these ideal conditions won't always be met, since you may have received an unsolicited offer or a letter of interest to acquire your company. We can say that the sooner we involve an advisor the better, but it will depend on where you are, because it's never too late to bring them in.
How do I choose my financial advisor?
Choosing the best advisor for your business will have a direct impact on how fast your process goes and the final price you get.
The size of the transaction is an important factor in determining which type of advisor can help you best. It's very difficult to pigeonhole advisors into specific deals, but broadly speaking there are:
- Full-service investment banks, also known as bulge bracket banks, such as Goldman Sachs, JP Morgan, Morgan Stanley, or Bank of America. They usually advise on deals above €500M.
- Mid-market or boutique investment banks, such as Arcano Partners, DC Advisory, AZ Capital, Alantra or the Big 4 (KPMG, PwC, EY, Deloitte). They usually advise on deals between €100M and €500M.
- Micro financial advisors specializing in specific industries or very specific geographic niches, such as M&A Fusiones y Adquisiciones, Closa, Tactio or Albia Capital. They usually advise on deals between €5M and €100M
- Finally, individual business brokers usually advise on deals of up to €5M.
How much does a financial advisor charge?
Structuring a sale process takes a lot of time, and processes generally last between 6 and 12 months. The fees will vary widely depending on the type of advisor you choose and your company's estimated transaction value. The fee structure is usually made up of a fixed fee, known as a retainer fee, and a fee paid on completion, known as a success fee.
The amount of the retainer fee or fixed fee will vary depending on the type of advisor you end up hiring: a full-service investment bank can charge between €30,000 and €100,000 per month, while a micro advisor will charge between €2,000 and €5,000 per month.
The success fee, on the other hand, can be structured in different ways: it can be a fixed amount regardless of the final transaction value (e.g., €150,000), a percentage of the transaction value, or a combination of both (e.g., a fixed €150,000 plus a percentage of any value achieved above what was expected).
Take your time researching and getting to know different advisors, and learn as much as you can along the way. Ideally, you should build a relationship with your advisor as early as possible, and that's why at Deale we help you find the advisor you need.
