“Do I really understand the purpose of an M&A advisor?” This is a question thousands of business owners ask themselves every year when they embark on the process of selling their company. Although there are many benefits to an advisor, some business owners still choose to bypass the intermediary, thinking the value is overstated.
In an effort to definitively answer this question, several academics “analyzed a sample of 4,468 acquisitions of private sellers during the period of 1980 – 2012 to examine the decision and the consequences of hiring sell-side M&A advisors.”
The results bode well for intermediaries:
- M&A Advisors Create Competition
The higher acquisition price derives from an M&A advisor’s ability to run smoother processes with better buyer lists. A smooth process means that the M&A advisor is particularly adept at keeping multiple, relevant bidders engaged simultaneously. Concurrent interest from several interested parties is crucial to creating the best sale price.
- M&A Advisors Are Most Important in Private Transactions
Competition is particularly vital for private companies because of the opacity of the private capital markets and the information asymmetry between first-time sellers and investors. While public companies receive more bids than comparable private sellers, private sellers often benefit from a sense of competition.
- Extra-Valuation Benefits
A sell-side advisor can identify strategic buyers, evaluate the a bidder’s offer, manage and pace concurrent negotiations with multiple bidders, reduce the information advantage that a seasoned acquirer has over a private seller regarding the M&A process, and represent a private seller in negotiations with potential buyers.
Ultimately, advisors help keep you focused on running your business — a vital part of any sales process. They do not let the transaction become a distraction that negatively impacts business performance during this critical period.
*original post appeared on an M&A forum