Three Proven Ways M&A Advisors Deliver Value

Three Proven Ways M&A Advisors Deliver Value

Matt Gilbert

August 28, 2019

Thinking about selling your business?

The internet is filled with advice emphasizing the importance of engaging with an M&A advisor. Virtually every article on this subject promises vague increases in business value while simultaneously delivering stress relief, experience, and buyer relationships. But what measurable, concrete, and tangible value do M&A advisors really add? 

A recent study sought to answer this question. Researchers asked former business owners who worked with M&A advisory firms whether the investment was worthwhile. Seventy percent said the advisor added significant value, and 100% asserted that the advisor delivered some value. These benefits point to engaging an advisor as an obviously-wise choice. However, despite this fact, many owners often choose to go it alone or - equally as problematic - they treat the process of choosing an advisor as they would shopping for a new car, hoping to find the best deal. Let us say it as plainly as we can, when it comes to M&A advisory, more often than not, you get what you pay for. If your goal is to maximize your exit, the best advisors will never be perceived as the cheapest. 

Study after study has proven the more you pay an advisor the more you tangibly benefit in the long run. The best advisors will provide a return of your fees many times over by securing an increase in transaction value and better deal terms, working capital levels, and other variables that must be negotiated throughout the sale process. Find and align yourself with an expert, pay them for results (not for hours), and focus your personal effort on making the year you sell the best year possible from a revenue and profitability standpoint.

A good advisor can support the sale and increase net value in three concrete ways. And a great advisor will also expertly navigate the nuances and intangible aspects of negotiations in such a way that the best buyer with the highest value will emerge.

Skillfully Organizing Financials

Every business relies on financial reporting and forecasting. Good business owners have KPIs (key performance indicators) and dashboards in place to draw on reliable information to forecast the future. When selling your business, you are selling an investment. Knowing this and knowing that investors are inherently risk-averse, an advisor looks at your company through a buyer’s lens, helping you detect problems that cause investment anxiety.

The story matters as much as the numbers attached to it, and they must jive in order to foster confidence in a buyer and his/her lender’s minds. It is imperative to provide a forward-look into key business metrics. Data-driven forecasts prepared by M&A-trained accounting professionals reassure buyers that you have a solid business, running on a clear plan and sound financial discipline. Top advisors know how to craft the business story around the financial story, ensuring that data backs everything up and making it easy for a buyer to get excited.

Improving Cash Flow

When you’ve led with the same management style for years or decades, stagnation is inevitable. A solid advisor offers fresh insights and firsthand knowledge that can help you quickly enhance cash flow. 

Increasing cash flow seems daunting at first blush. We all know recurring revenue, a diversified customer base, and increased productivity are keys to setting your business apart. Yet many owners are unaware of specific, time-tested strategies used to deliver these and other necessary value-enhancing improvements. In some cases, you might have to abandon your routines and think critically about the way you do things. An advisor helps weigh the risks and rewards of various strategies, so you can quickly assess the business from the buyer/lenders’ viewpoints and deploy the best strategies for your business to increase cash flow. 

Assessing Your Management Team 

You hired and trained your managers. You’ve labored with them over the years. They may seem like family at this point, so it’s perfectly natural to be dismissive of some of their shortcomings.  

However, an overly-involved owner is a significant red flag to a buyer and a liability in the selling process. So, too, are weak management teams. Potential buyers will be hesitant to acquire companies with management teams who appear to be weak once you step away from the leadership role. Advisors offer unbiased input and can help gently guide you toward strategies that bolster your team.

Therefore, if you’re considering an exit, the time to start the process is now. Finding the right advisor demands a careful search process and may take meeting with several firms. Then, preparing for the sale can take a year or more depending on your unique situation, the market for businesses like yours, and the appetite lenders have when the deal is ready to be consummated. The more time you have to prepare, the better, since greater preparation means more opportunities to increase value, efficiency, and transferability. A lucrative exit may be just around the corner - but it is usually reserved for those willing to do some early planning. 

About GaP Business Advisors

Gilbert & Pardue Business Advisors (GaP) is a Houston-based business advisory firm serving  lower middle and middle market owners from coast to coast through representation for Mergers & Acquisitions (M&A) and through business value-growth services such as Fractional CFO, Advisory Board, Executive Coaching, and Consulting.

Matt Gilbert and Bret Pardue established GaP to provide owners of  lower middle and middle market businesses – those businesses generally enjoying annual revenue of $5-$50 million – with the quality of M&A representation and value-enhancement services previously only available to middle, upper middle, and large businesses. GaP brings highly-experienced executives, sophisticated financial and marketing products, proven-effective processes, and fully-integrated expertise to every engagement. No other M&A firm serving the lower middle and middle market provides the quality of representation and transactional expertise that we do.

Join hundreds of other business leaders and owners in the know. We regularly share lower middle and middle market insights and educational content aimed at helping business owners plan and navigate successful exits or partnerships.

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