Skip to content

Which advisors do you need

Your business is something you built up and spent a lot of time, energy and money on to get it where it is today. Naturally, you feel emotionally attached to your business. However, in a sales process and especially in negotiations emotions have little place.  Investors look to your business objectively at facts and hard numbers. You need to be able to objectively and clearly state out the supporting assumptions underpinning your sales price.

Investors will try to get an as low price as possible and hard negotiations might be needed. Bringing emotions to this process does not help and only deteriorates the situation.

What advisors are there

To keep emotions out and to keep negotiations objective consider hiring transaction advisors. The following advisors are common:

  • Lawyers (required on sell-side and buy-side): lawyers are needed to write the transaction documentation (e.g., purchase agreement, binding offer) and perform legal due diligence.

Be sure to engage a lawyer from the start of the process to ensure correct documentation and legal enforcement of the confidentiality agreement, non-binding and binding offers.

  • Brokers or M&A advisors (recommended on sell-side and optional on buy-side): Brokers or Merger & Acquisition (M&A) advisors are mostly seen on the sell side. They facilitate the process and look for potential investors.  In larger deals this role is performed by an Investment Bank (e.g., JPMorgan, Goldman Sachs, Morgan Stanley). They work with a retainer and a success fee. The retainer is deducted from the success fee if the deal is successfully completed. The success fee is a percentage of the purchase price.

    It is not necessary to have a M&A advisor but on the sell side it is highly recommended. When structuring the deal as an auction a M&A advisor is required. Even when the deal is exclusive M&A advisors can still add value and assist in the negotiations to ensure the price being paid is not too low. I have seen many cases in an exclusive process where no M&A advisor was engaged by the Seller where ultimately the potential investor walked away due to difficulties in the negotiation and lack of knowledge from the Seller of purchase price mechanics and overall transaction knowledge.
  • Accountants or transaction advisors (recommended on both sell-side and buy-side): Your house accountant might be your first point of contact. However, they lack the specific transaction experience that is required. While your financials could be correct from an auditing or accounting perspective this does not mean they are presented adequately from a transaction perspective. Having experienced transaction specialists assist you in preparing deal financials will result in achieving the best and highest sales price. They assist in analyzing your numbers and identifying potential one-off items, which increases your underlying recurring profitability. Also, transaction advisors can assist in answering financial related questions from potential Buyers, reducing time needed from your side.
  • Tax specialists (recommended on sell-side and buy-side): Tax specialists are involved in several aspects of the potential deal. They are involved in deal structuring, in which they advise on the most tax efficient way to structure the deal from a sell-side or buy-side perspective. They can perform tax due diligence, assessing the tax returns, compliance with tax regulations and potential tax liabilities. The tax areas they analyze include: corporate income tax, VAT, social security and social charges, transfer pricing and other indirect taxes (sales tax, etc).

Involve your tax advisor early on when structuring the deal to ensure the most tax efficient method.

  • Other advisors (potentially on both sell-side and buy-side): Depending on the sector your business is active in other advisors could be engaged. For example: IT specialists, commercial or strategic advisors, technical advisors, etc.

Finding the right advisor

Finding the right advisor is crucial to the success of your deal. Depending on the size of your Company and the expected sales price, the best advisor can change. While having a large investment bank as your advisor sounds nice, they only work starting at a certain purchase price, and even with that you run the risk they do not send their best team.

Be sure your advisor is experienced and has recently successfully completed deals in your market.

Consider the following when hiring external advisors:

  • Do they have specific transaction experience? While hiring your friend house lawyer might seem nice, if he lacks transaction experience he is of little use.
  • Do they have knowledge in your sector? Sector knowledge is valuable in assisting you with preparing the right value story and in communications with you and potential investors.
  • What are their (local) credentials? Especially, for M&A advisors this is crucial. Do they have a proven track record of recent and similar deals in your sector? If you want them to look for potential investors it is key they know the market. If you want local investors they need to know the local market. In this case you are better off with a smaller local M&A advisor, who sees you as their key client and helps you to the fullest, rather than an international big firm with many clients and mainly international deal experience.
  • How is their fee structure? M&A advisors and brokers work with a success fee. As the nature and extent of the work is unknown lawyers provide you with a hourly rate. Other advisors, such as transaction specialists, can provide you with a fixed fee arrangement.
  • How is their availability and estimated timing? Make sure that it matches the timeline of the rest of the process.

Find more on: