Tuesday, 29 November 2011

How Does an M&A Advisor Add Value to the Divesture Process: the Intangibles

My last post was about whether an M&A advisor is worth the cost of managing the divestiture process and how he or she goes about realizing the highest value for his/her clients.  In this post I want to comment on the non-price issues that could arise and how an M&A advisor can keep the process running smoothly and ensure the post sale relationships are started on the right foot.
The following are three areas where an advisor improves the chances of a successful transaction:

·         Allows the business owner to concentrate on running the business

I noted in “How Do I Attract a High Multiple for My Business: The Sale Process” that the selling process is one that takes seven to ten months to complete and that performing below expectations during this time could lead to serious delays and potential difficult renegotiation.  Creating the offering materials and contacting/informing suitable buyers alone is a full time job for the first several months.  Working with an advisor allows the principals and management to stay focused on the business and its performance throughout the process – the process can be long and distracting but the business should remain priority one.

·         Shows serious intent to complete a reasonable transaction

Retaining an advisor demonstrates serious intent of the vendor, ensures objective expectations have been set during the planning phase and makes buyers aware that they will be participating in a competitive and professional process; something which can be leveraged during negotiations.   The sale process is often an emotional one and having an objective advisor can provide independent advise and direction which otherwise might not be possible.

·         Creates a buffer during negotiations to ensure positive post-transaction relationships

Another role advisors play is wearing the ‘black hat’ during the process.  Not only during potentially heated negotiations, but any time the process looks to be stalling, the advisor can shoulder the blame in order to put the process back on track.  Keeping the principals one step removed during difficult negotiations allows them to maintain a positive business relationship as they work through a transition with the new owners.

The experience of having closed many transactions also provides the benefit of a portfolio of workable alternatives available during negotiations and deep knowledge of structural pitfalls (for example, tying an earn-out to the lower end of an income statement) and last but not least, a network of strong deal-friendly lawyers and accountants.

The Veracap Value Enhancement FrameworkTM illustrates that opportunities for value enhancement are created through timing the sale, preparing for the sale, valuation and pricing initiatives and how to realize on the value that has been created through building deal momentum in the search for buyers, preliminary due diligence, deal structuring, negotiations and closing BUT if you don’t manage the soft factors you may not close at all.

Derek van der Plaat, CFA has worked in private market M&A for more than 20 years and is a Managing Director with Veracap Corporate Finance in Toronto.

1 comment:

  1. An M&A Advisor should be one who can provide his clients with real value based guidance rather than simply forcing sales in order to generate a better percentage. Advisor's part represents important significance in a modern situation like the existing one, when it is easy for investors to forget their goals and make incorrect financial commitment choices. Choose an advisor for his capability to suggest the right financial commitment methods and handle your investment strategies rather than his desire to return percentage.

    M&A Advisor