Thursday, 29 November 2012

What Exactly Does an M&A Advisor Do?

In “How Does an M&A Advisor Add Value to the Divesture Process?”, I noted that M&A advisors typically charge between 3% and 7% as a success fee for managing the sale process for a company.  The question I addressed then was, will engaging an M&A advisor improve your expected sale value by at least 5%?
Here I would like to outline exactly what an advisor does in the process of a sale mandate.  At this point I am assuming that pre-mandate matters such as preparing a business for sale, value expectations and timing from a business and market perspective have been discussed and it is agreed that it makes sense to proceed.
The advisor side of the deal team typically includes a senior lead such as a Director or Managing Director plus at least one Associate or Analyst as support.  In addition, in our case, there are usually international resources involved through our M&A international alliance.  Our M&A partners can do as little as buyer introductions to as much as negotiating and structuring deal terms.
An M&A advisor will: (i) position the selling company as a strategic fit for target buyers; (ii) present the opportunity to numerous logical and capable buyers; and (iii) manage the process along a defined and orderly timeline, in order to generate the highest premium possible.  We typically identify what we are responsible for in our engagement letters as follows:

·              Conduct a review of the company in order to better understand the nature of its operations and value proposition to prospective partners including:
o      a review and analysis of the historical and prospective financial results of the company;
o      a review and analysis of operational, marketing, technical and other information regarding the factors that influence the cash flow prospects and risk dynamics of the company;
o      discussions with management regarding the operations of the company;
o      a review and analysis of public information and other available information pertaining to the company and the industry in which it competes, and
o      a review and analysis of transactions that have taken place in recent years among businesses whose operations are similar to those of the company.
·              Prepare company overview materials in consultation with the company, which will provide prospective partners with an understanding of the nature of the company and allow them to assess value;
·              Conduct a search to identify suitable potential partners, guided by any criteria provided by the company;
·              Contact and screen potential partners;
·              Assist the company in the preparation of due diligence documentation, a management presentation and related materials for review by possible partners;
·              Negotiate with possible partners;
·              Work with the company’s legal counsel, tax advisors and other advisors to assist the company in structuring the transaction so as to meet its financial objectives; 
·              Review the documentation in respect of the transaction; and
·              Other functions as required in support of the transaction, and as agreed to from time to time.

The whole process may take six to eight months and the M&A team will spend somewhere between 300 and 500 hours on a file.  M&A advisors will have a lot of familiarity with legal documents and tax issues, but ultimately lawyers and accountants are required in the areas of due diligence, purchase and sale contracts, and tax planning.

M&A advisors often highlight how competitive bidding between several eager buyers resulted in an extraordinary price for their clients but, like the over-night success story ten years in the making, a completed divestiture relies on a foundation of thorough planning and process.

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. Many organizations are enjoying the success derived from mergers and acquisitions. M&A is a company strategy for buying or working together organizations to save costs, provide company development, improve capital structure and other company goals and goals. It requires a great knowledge about a company and its prospective buyers to make it a successful undertaking for both the organizations.

    Mergers Acquisitions