18 Jan Why you should hire a sell-side consultant
There is something rewarding about completing something, from start to finish, yourself. With that said, more often than not, the house alterations never look as good as if you paid a professional. Having a slightly uneven window pane is one thing; an un-perfected M&A deal could have a lot more impact. This M&A blog covers off why it’s important to consider hiring a professional when completing M&A.
Perceived cost savings
Deciding whether or not it is the right time to sell, or whether you should accept an offer, is a hard decision to make. However, once the decision to sell has been made, you will be faced with an even more daunting, and substantially more important question. Should you handle the sale yourself or should you hire a sell-side M&A consultant?
Many business owners make the mistake of choosing the first. More often than not, there are two leading factors behind such a decision; the perception it will save them time and more commonly money. I used the word perception intentionally, as both these presumptions are generally incorrect. Our recommendation is that even if a potential buyer approaches you, you shouldn’t attempt to navigate a sale yourself. What you may lose in cash outlay to pay a sell-side professional, you more often than not will gain back in other ways. We explain more on this below.
Consultants enhance value
When you are entering into a sale negotiation, one of the most imperative factors you need to ensure is that your company, the business you have poured your blood sweat and tears into, is valued correctly and more importantly fairly. An accurate and fair business valuation will help you establish the best sale price. Best is a relative word, as both the buyer and seller want the best sale price. In our view, the best price sits where both parties are happy. There are several common factors used to arrive at this price, most have been covered off in previous blogs. These include, but are not limited to; EBITDA, assets, liquidity, WACC, growth etc. More so, every industry and even location needs to be examined as they all require a slightly different approach. If you are not an expert at fixing a car engine you seek out a mechanic, why would you go alone at valuation? Valuation is a skill which analysts spend their entire working career mastering. More so, as stated several times in my previous blogs, valuation is an art, not science. There is no specific manual for your company. My previous firm had detailed valuations of over 100 listed companies, and every valuation model was structured slightly different. If you aren’t experienced in evaluating and negotiating deal points, such as working capital, excluded assets or discount rates, you’re potentially, and most likely underestimating your valuation. This is more commonly the case if your potential buyer has hired a consultant as you are now in negotiations with an expert.
Consultants bring clarity to murky waters
Murky waters can be navigated by most experienced business people. If you are in the position of selling your business, you are more likely than not, experienced in business and an expert in your field. What hiring a consultant does is make the process more efficient. Ensuring that the sale process is efficient is almost as important a factor to that of arriving at a correct and fair sale price. Experienced advisors and consultants know the common pitfalls, where time is wasted and where deals are likely to fall over. Knowledge of this can not only ensure the deal actually progresses but can ensure that the sale goes ahead quickly. The faster the deal is signed, the less time your buyer has to change their mind. Although everything in your life revolves around your business, your potential buyer has a lot of fish in the sea. More so, who wants to spend a year, or surprisingly commonly more, of your life trying to get through an M&A deal?
Some common pitfalls
This list is not exhaustive, and not designed to replace a consultant. We are simply providing a list of common mistakes that might trip you up. If your advisor has not covered these off with you, double check they have investigated them.
1) Concentrating on one possible buyer. If being approached by someone triggers your desire to sell your business, the prudent response is to now look to the market. Usually, the business owner knows someone that is interested and focuses here rather than confidentially connecting with a large pool of potential acquirers. This can hamstring you as your only prospect could change their mind, or offer you something you are not happy with.
2) Sloppy marketing. What surprises me is that companies with large marketing budgets for customers try to save on marketing material when they decide to sell. Isn’t this the reason you go into business in the first place? You need to spend money here, developing unique and targeted marketing materials for various types of buyers.
3) Due Diligence. We covered this off in detail: “The Diligence Dilemma”. Failing to help your potential buyer through the in-depth requirements of due diligence can lead to a failed deal. From my experience, the most important step missed here is communication.
A bad track record for DIY
Business owners’ negotiating a deal often find themselves in the midst of a difficult sale process and ultimately experience the deal falling apart. There is generally no second chance with that buyer, and a failed deal gives negative signals to the market. However, not executing the deal is not the only way to fail. The deal may go ahead but at a very low multiple. We often see a final purchase price well below what was justified and wonder why owners sold themselves so short.
Maintain focus on your business
Do you have a year to focus on this, or is your time better spent drumming up business? Rather than stepping away from your business to navigate the sale process, that you most likely know very little about, hiring an experienced consultant allows you to focus on the most important thing that will drive value into your sale, your business. Consistent sales growth is your most important asset, and a dip in sales whilst you focus on the deal will ultimately lead to less cash. When it’s the correct time to sell your business you will know, it will feel right. When you do decide to sell your business, then make the smart choice and hire an experienced sell-side consultant.