Sophisticated repeat sellers of businesses such as private equity groups clearly understand the value that an M&A advisor adds, since virtually all of them hire one when selling a portfolio company. On the other hand, business owners who are selling for the first time haven’t experienced the value that a capable intermediary can add, which puts them at a disadvantage. Fortunately a recent survey of business sellers by Fairfield University professor Dr. Michael McDonald provides credible evidence that intermediaries do add value and explains how. I’ve summarized some of the survey’s findings here.
Professor McDonald surveyed 85 business owners located across the U.S. who sold their companies with the help of investment bankers* for between $10 million and $250 million during the 2011 to 2016 period.
All sellers answered YES to the question of whether their investment banker added value. As to where they added value, McDonald asked the owners to rate the value and relative importance of 8 services that such intermediaries provide:
- Identifying and finding the buyer
- Managing the M&A process and strategy
- Adding credibility to the seller
- Enabling management to focus on running the company during the sale process
- Educating and coaching the owners
- Negotiating the transaction
- Preparing the company for sale
- Structuring the transaction
All eight of these services added value according to the owners surveyed. They said that the most valuable services were, “managing the M&A process & strategy”, “structuring the transaction”, and “educating and coaching the owner”. Importantly, the least valuable service was “identifying and finding the buyer”. Simply introducing a buyer to a seller is not the primary value that intermediaries bring to the table (though clearly that is still a valuable part of the M&A process).
While this survey focused on $10-250 million deals, I believe its findings hold true for smaller companies as well. If anything, the value that an experienced deal intermediary brings to smaller company owners is even greater. These owners usually have less transaction experience and fewer internal resources to draw upon, and are even more consumed with running their companies than their middle-market counterparts. Partnering with an intermediary makes even more sense.
* I’m using the terms investment banker, M&A advisor, M&A broker, business broker, deal maker and transaction intermediary more or less interchangeably here. Firms that handle only $25 million plus deals usually refer to themselves as investment banks. Firms that mostly sell main street businesses for under $1 million usually call themselves business brokers. Exit Strategies operates at the low end of the middle market — most of our transactions are in the $1-30 million price range — and we’ve settled on calling ourselves M&A advisors. Some firms like ours prefer the term “boutique investment bank”, particularly if they serve a narrow industry niche. When hiring an intermediary, regardless of what they call themselves, it is more important to get a good understanding of their knowledge and experience, and the level of service they provide.
If you’re considering selling your company, Exit Strategies’ M&A advisors would be pleased to have a confidential conversation with you about your business and your plans, and how we can help you achieve a successful exit. For more information or to discuss a current need, you can reach Al Statz at 707-781-8580 or firstname.lastname@example.org.
Download the full survey results: The_Value_of_Middle_Market_Investment_Bankers