4 Big Things to Know When Choosing an M&A Advisor

Selling or buying a business is one of the most influential, impactful decisions an owner can make. If you’re beginning to research the transaction process, you’re probably realizing that you need a little guidance while executing the deal. 

That’s where an M&A advisor comes into the picture. Their job is to guide you through the complicated world of mergers and acquisitions and provide you with professional advice. Although you could sell your company without the help of an M&A advisor, doing so often leads buyers and sellers down a bumpy road.

In 2022, there were more than 22,000 M&A deals executed, worth a total of $1.73 trillion. This is how professionals buy and sell businesses – especially if they want the best chance to get the correct value for the company.

Are you thinking about buying or selling a company? As you begin the process of choosing an M&A advisor, there are four crucial factors to keep in mind.

1. There’s No Substitute for Experience

An M&A advisor can say all the right things and exude confidence, but if they don’t have years of experience and a good reputation under their belt, it doesn’t matter. Up to 70 to 90% of mergers and acquisitions fail – and the two predominant culprits are poor communication and insufficient experience.

Not only do M&A advisors need decades of experience, but they also need experience in your particular industry. They should know the value of your business and its standing within its respective field.

When you think you’ve found the perfect M&A advisor, ask some tough questions. With this much on the line, you need to know who you’re working with – and that they can truly help you execute the best possible deal. 

Questions you should ask before making a final decision: 

  • Is it the right time to sell my business or purchase this business?
  • How will you find the value of my company or the company I’d like to acquire?
  • How will you determine the right buyer for my company or convince the target that I’m the right person to buy their company?
  • How much experience does your business have in closing deals?
  • What is your standing in the M&A community? 

Don’t take the process of choosing an M&A advisor lightly – there’s no substitute for excellent guidance during business mergers and acquisitions.

2. Different Advisors Have Different Fee Structures

Ask questions about the M&A advisor’s fees and billing upfront. Different M&A teams have different pricing structures, and you need to choose the one that’s right for your circumstances. 

M&A advisor fees usually include retainer and success fees that will vary from firm to firm. You want to find a balanced fee structure that makes sense for you. 

Be aware that firms that charge large upfront retainers and lower success fees might have less motivation to close your deal. If their profit comes out of their success fees, they will be more driven to close your deal as successfully (and quickly) as possible. You should also ask about incidentals and hidden fees.

M&A advisor fees can range from a few thousand dollars to $50,000 or more. Most advisors have a minimum fee in the range of $50,000 to $250,000. However, a word of caution: the cheapest option is not always the best when choosing an M&A advisor.

If you want your transaction to be successful, you should thoroughly evaluate your advisor and understand that with experience and credibility comes a larger fee. You just need to make sure that their fee structure accurately reflects their skillset.

3. You Need to Discuss Your Timeline

One thing to know when choosing an M&A advisor is that the timelines can vary, and you need one that’s defined and fits your goals. While making your hiring decision, ask potential M&A advisors about past projects that have closed and how long they took. Inquire about issues that came up along the way, how they were handled, and how those matters impacted the timeline. 

You should also talk to your M&A advisory firms about their strategies and how they execute their plans. This is another area where your M&A advisor needs knowledge and experience in your respective industry. You want an advisor who can hit the ground running – one that knows the field and has a time-tested approach to employ.

When interviewing M&A advisor candidates, know that your best exit strategy might be to wait until your company gains more value and the market is better attuned to your needs. If this is the case, will your M&A advisor make that recommendation? Can you count on them to make the right decision for you

4. Trust Is Critical

Lastly, you need to be able to trust the M&A advisor guiding the future of your business. Hiring the wrong advisor can easily cost you money in a sale – or blow it altogether. 

The question is, how do you learn if you can trust the advisor? It’s not an easy task, but you can start by:

  • Requesting references and looking at their experience and reputation
  • Inquiring about the firm’s team members who will be involved 
  • Understanding and discussing fees upfront  
  • Asking about their strategies and ensuring they align with yours
  • Making sure you have good chemistry with the firm’s team

At the same time, there are some red flags you might encounter when choosing an M&A advisor. The biggest ones to quickly note are:

  • A lack of real references or credentials 
  • Low closing rates/few success stories 
  • Large upfront, one-time fees for valuation or material preparation

At the end of the day, you want to work with someone who will look after you and the business you’ve built. Ask yourself: does your M&A advisory firm have your best interests at heart, or are they just looking for a paycheck?

In Conclusion

Choosing an M&A advisor is a major decision. You want to go into any deal with the most experienced and qualified firm. After all, your business is too important to do anything less. 

If you’re looking for an M&A advisor who truly knows his stuff, turn to Chris Smith and his team. We’re here to ensure business owners maintain control throughout the transaction process and get the price they deserve. 
Contact our M&A advisory firm today and we’ll work hard to value your business, get it on the market, and find a qualified buyer. If you’re looking to sell, we can also help you find the right business and secure it for the right price.