Buying or selling a business is a complicated endeavor that many people prefer not to venture upon without a professional guide. Buyers and sellers who utilize an M&A intermediary are able to maximize the value of their deal and complete it successfully. An M&A advisor oversees the entire course of buying or selling a business and acts as a financial advisor through each step of the process. The intermediary will ensure that those new to buying or selling a business are not taken advantage of due to a lack of experience.
However, many new to the M&A industry may wonder how to differentiate a good intermediary from a poor one. The following is a list of questions to ask during the hiring process so that one may determine which intermediary to hire.
1. What are their credentials?
Surprisingly, not all firms that buy and sell businesses are required to possess any official certification or licensure. That being said, a firm that is dedicated enough to obtain additional training indicates expertise. Buyers and sellers should seek out intermediaries with some sort of accreditation and proven history of M&A transactions.
It is also important to ask the intermediary if they have already sold businesses similar to the one in question. If an intermediary specializes in manufacturing businesses, and one is seeking to sell a service-based company, then this will not be a good fit. On the other hand, if the firm encompasses all types of business, do not be quick to discount it due a broad range of clients.
It is also vital to identify the difference between a "business broker" and an "M&A intermediary". Depending on the size of the business, one type of professional is more appropriate than the other. Click here to learn the difference between the two.
2. Are they committed to complete confidentiality?
Many sellers hesitate to work with intermediaries based out of the same location as their business; for fear that that could potentially leak information about the M&A deal. Should news of the sale escape to employees or the public, the reputation of the company could be damaged, staff could exit the company, or competitors could utilize this news to lure away customers. However, a good intermediary will hold complete confidence no matter where they are located or what the situation. An experienced intermediary will have a variety of tactics to ensure the safety of all private information.
3. How will they be compensated?
Intermediaries are either paid on a fee-based or commission basis. However, considering common sense, it would be advantageous to only compensate the intermediary once the deal has been completed and their job done.
Many M&A firms will offer a seller a free valuation. However, the adage "you get what you pay for" also applies within the M&A industry. Be wary of those offering free services up front. Experts are not afraid to charge for their quality services, and a valuation is considered a freestanding service. In a fee-based structure, the M&A intermediary will typically assist the seller in enhancing the value of the business once the initial appraisal has been made. Free valuations do not have this added value, and an intermediary may not provide these other services until they have been hired for the entire M&A process.
4. How will the business be promoted?
Does the M&A intermediary have access to an exclusive network of business buyers? If the only avenue for promotion will be completed through public internet advertising, then this is not worth paying someone else to do, since one may easily advertise in this manner without assistance. A good M&A intermediary will tout a connection to an extensive database of potential buyers.
It is also important to ask the intermediary in what manner they plan to ensure that the potential buyers are of quality and suitable for the business in question. While it may be easy for anyone to promote the news of a business for sale, one must secure that the information released keeps the business confidential and the targets appropriate. Otherwise, the seller will waste a substantial amount of time sifting through potential buyers. An experienced intermediary will have tactics in place for finding the perfect match.
5. What relationship will they have with you?
It is vital to find out if the intermediary is working with both sides, or if their allegiance is exclusively on one side of the M&A deal. An intermediary with financial fidelity to the seller's side will work harder to negotiate a deal that solely benefits the seller, and vice versa.
6. How do they conduct valuations?
Ask the intermediary about their processes for valuation, as this is an integral part of the M&A process. For a middle market business, are they planning to utilize street value? A larger business, such as a company worth over $1 million, should be analyzed on a variety of factors in order to get an accurate valuation number, not simply a glance at book value or market comparisons.
7. Do they have referrals?
One of the best ways to deduct if the M&A intermediary is worthy of one's time and money is through contacting referrals. Past clients can outline both the positive and negatives of working with a specific M&A firm. All referrals should be enthusiastic about the intermediary. The advisor should be able to provide a successful track record for past deals.
In summation, a good intermediary will earn their compensation through value-added services. Utilizing the tactics above, one may determine how to find the most beneficial professional to assist in closing the M&A deal. At George & Company, we fit all of the criteria listed above. We focus on complete confidentiality, and all of our M&A advisors have obtained certification. Contact us to learn more about our firm and how we can assist you in buying or selling a business.