What is an M&A Advisor, and what do they actually do?

One of your first major decisions when selling your company is whether to appoint an M&A Advisor to assist you.

But their role and how they add value is often misunderstood.

So let's explore who are they and what they do, so you can decide if they are worth the investment.

What is an M&A Advisor?

M&A Advisors are consultants who specialise in helping companies through the process of being bought or sold (mergers and acquisitions).

They can work on either side of a deal. On the buy side, they help companies identify targets and support the internal team through the acquisition process. On the sell side, they help owners find buyers and manage the entire process of due diligence and negotiating the sale contract.

Commonly, especially in large deals over $100m, both buyer and seller will appoint an M&A Advisor to support them.

Which firms do this work?

M&A Advisory firms come in different packages.

Most of the big bulge-bracket investment banks (Morgan Stanley, Goldman Sachs, Deutsche Bank) have large M&A advisory practices. This is why an M&A Advisor is often referred to as a “banker”. These firms tend to handle the very high-value deals, often involving public companies or acquisition of $1b+.

Accounting firms (KMPG, Deloitte etc.) also offer these M&A advisory services.

Beyond that, there are many smaller boutique firms which specialise entirely in this type of work. They tend to focus on niches such as specific industries or verticals, or focus on smaller or mid-market deal sizes.

So... what do they actually do?

Their role is extensive. Sellers tend to appoint them early in the process, and they are integral all the way through to the money hitting your bank account.

Let's use a typical sale timeline as a framework to explain their role and how they help you to get the best price and terms, and get the deal over the line.

Pre-Sale

• Shape your valuation expectations. M&A Advisors are very well connected in your industry, so they will have seen many recent comparable deals which can serve as benchmarks for valuation. This will quickly give you a range for what your business might be worth, helping you decide whether now is the right time to sell. Read more: Take 20 minutes to speak with an M&A Advisor today.
• Get you sale ready. Likewise, they are experienced in due diligence and know what buyers will be looking for. They can guide you on whether your business is in the right 'shape' to be sold, find issues that might block or hinder a sale or reduce the valuation, and help you fix these before going to market.

Buyers

• Find the right buyers. This is perhaps their number one value add. Good advisors are super well connected in your industry with good reputations. They should personally know the key people at potential buyers, and can make the approach to start the conversation. More broadly, they should understand the buyer landscape... which buyers are in a buying mood, who moves quickly or slowly, which are political, and which buyers will pay premiums for businesses with characteristics like yours.
• Build the story. A key part of engaging buyers is creating the narrative around the business: the origin and growth story, why its for sale, and why you are a good fit for that particular buyer. Their market knowledge is key here too.
• Prepare pitch materials. This is where they do a lot of heavy lifting. Their team of analysis will help prepare all the documentation you need at the early stages: an initial one page 'teaser' pitch and the full Information Memorandum which will be a lengthly document.
• Prepare forecasts. To support the IM, you will need a set of financial projections for the next 3-5 years. This is a difficult balancing exercise between ambition and believability (see The Goldilocks Problem), and a lot of work. Having some experts to lean on here is a great help.
• Prep management presentations. Interested buyers will want to sit down with management as the first major interaction. You run through the Information Memorandum and answer their questions. Your advisor will help you prep and coach you through those presentations, to make sure you have the maximum impact.
• Shape competitive tension. Advisors subtly and ethically allow buyers to sense competition and maintain momentum so no buyer drifts. There's no better driver of price than competitive tension (see Creating Heat: Competitive Tension in an Exit).
• Organise the process. There is a tonne of work to manage comms with buyers, send updates, enforce the timeline and more. They shield you from this admin so you can focus on key decisions and running the business.

Negotiating Structure & Price

• Structure the deal. One of the key decisions is how the acquisition is structured – it could be a minority, majority or 100% sale. Earnouts and deferred compensation will come into play. Experts in deal structuring will help propose structures that help achieve your objectives.
• Support price and LOI negotiations. This is obviously key. Your advisors will bring clever arguments to support your price negotiations, and benchmarks from recent deals. They understand the art of negotiation, and can advise you on when to push back hard, and when you might want to take the offer on the table. And when negotiations get tense, they can play “bad cop” so you can remain the founder buyers want to work with.
• Resist price chips. Price chips are when the buyer aims to negotiate the price down from what is agreed in the LOI... and they are a killer. You need good negotiators on your team to push back. More on that here.
• Negotiate the sale contract. While lawyers draft the documents, the M&A Advisor will guide you on how and when to push back, propose creative solutions to deadlocks, and navigate jargon and help you understand claims from the buyer that their clauses are 'market standard' when they may not be.
• Thought partner. Throughout they are also a thought partner. You will make decisions which feel huge for you, but they have seen these scenarios many times before. That means they can guide you through decisions, help you to evaluate trade-offs, stress-test your assumptions and give you clarity when you’re overwhelmed.

Due Diligence

• Build the data room. This is another area of heavy lifting. You will need to find hundreds of documents to populate the data room, covering customer contracts, employment contracts, IP, leases etc. Your M&A Advisor will have a team of analysts who can comb through your systems to find and organise these documents, and let you know where there are gaps.
• Guide you through due diligence. The DD process is long and brutal. The buyer will have a giant team comb through the data room, and bombard you with many requests. Your M&A Advisor team will be the first line of defence for questions and document requests and advise on how best to respond. Time kills deals (see The 24-Hour Rule When Selling Your Company), so responding promptly is key – they have the resources to help. And if the buyer does identify a red-flag issue, they will help put that fire out.

Team Building and Stakeholder Management

• Build the deal team. Unfortunately your team of advisors doesn't end here, you will need lawyers, accountants, tax specialists... plus other specialists specific to your situation (for IP or employment for example). Getting the best advisors at fair rates is hard. An M&A Advisor who is embedded in this ecosystem can add a lot of value by helping you hire from their network.
• Manage the lawyers. Lawyers can often over-reach – creating major roadblocks over technical or minor legal issues. As an inexperienced seller and not a legal expert, it can be hard to keep them focused on material issues only. Your M&A Advisor will keep things on track and moving quickly.
• Manage stakeholders. As the deal progresses, you will encounter difficult shareholders or board members, personality clashes, and crossed wires. Your advisor can step in as first line of defence.

Therapy

Lastly, a good M&A Advisor will feel like a therapist.

You will get emotional as the deal progresses. At some point, you will feel despair if it looks like the deal may die, timeline stretch or it looks like you might not get the price and terms you hoped for.

Advisors act like a shock absorber, to help guide you emotionally through the deal. This will stop you over-reacting, and their coaching will help you emotionally through difficult periods.

What next?

There's much more to say on M&A Advisors. Look out for the following articles over the coming weeks:

• How much M&A Advisors cost and how their fees are broken down (Hint: it's expensive)
• Evaluating whether or not you need one for your business sale
• How to find a great down M&A Advisor
• How to get the most from your M&A Advisor