If you’re thinking about pursuing a merger and acquisition (M&A) deal for your company, you’re probably overwhelmed with managing tons of potential partners, financiers, and contracts — not to mention your day job of leading the workplace.
But did you know that there are specialized services available to help get you through your deal? This article explores what an M&A advisory is, as well as how it can help your next deal become a resounding success.
What Is an M&A Advisory Company?
In the broadest sense, an M&A advisory is a service performed by a third party in a merger or acquisition. These services can include professional consulting as well as help with finding buyers or lining up financing. Some M&A companies even assist with ensuring that the new entity runs smoothly after the deal is complete.
What Are Examples of M&A Advisory Services?
Given the broad definition of an M&A advisory, there are plenty of roles an advisor can take, including:
- Developing a strategy and setting goals for your M&A
- Identifying potential partner companies
- Valuating the companies involved
- Preparing contracts and other agreements
- Raising capital
- Performing due diligence
The exact scope of services can be negotiated beforehand. Therefore, your advisor can be as involved as you need them to be.
Why Should a Company Get an M&A Advisor?
Bringing in another company to help your business is always a risky decision, but there are some big benefits of working with an advisor.
- Long-Term Experience: No matter how much you’ve thought about whether selling your company is right for your business, you’ve likely never closed more than a few deals before, if any at all. On the other hand, a dedicated advisor is experienced in closing deals. They’ll have a much easier time going through due diligence, negotiating on your behalf, and (most importantly) knowing when to walk away.
- Market Savvy: As a good business leader, you’re probably up to date on the latest developments in your market segment. But markets are complicated, so M&A advisors spend a lot of time reading and understanding all the factors that would determine whether a merger or acquisition is right for your business. Advisory companies also have access to premium market research services that don’t make financial sense for your business to have on its own.
- Extensive Contacts: You may have a few potential M&A partners from your own contact list. But what do you do when none of them is interested in a deal? These advisory companies have spent years collecting hundreds of contacts in your industry, any of which could be a potential deal partner or financing source. This is especially helpful when you’re looking to expand into new markets and regions.
How Much Does an M&A Advisory Cost?
M&A advisors typically charge an upfront commitment fee to start working for you. This fee — usually around $10,000 — ensures you’re serious about closing a deal and might be applied toward setting up your account and marketing your company to potential M&A buyers.
In addition, advisory firms charge a monthly fee or a retainer. As the advisor conducts due diligence, reviews contracts, and lines up financing, hours are charged against the retainer, which might start at $1,500.
Finally, firms charge a success fee, which is calculated to be 2%–5% of the deal value. Since no one can guarantee that you’ll find the right partner, the success fee is a way to incentivize the advisor to do a good job. The success fee is usually separate from the other fees, though sometimes the engagement and retainer fees are deducted from the success fee.
Is an M&A Advisory Worth It?
Like so many other major business decisions, choosing to work with an advisory firm is about balancing time and costs. Sure, you may need to take out a larger small business loan to pay for their services. But it also means that you won’t be the one spending hours redlining contracts and making sense of the fine print.
While the advisory service takes care of that, you can focus on other matters, like effectively communicating your M&A to your employees or simply running your business.
Of course, as a business owner, you’ll always be in charge of the big M&A decisions. But if your time is better spent doing something other than contract review and negotiating small details, then it probably makes sense to use an M&A advisory service.
Your M&A is Always About What’s Best for Your Company
Whether or not you decide to move forward with a dedicated M&A advisor, always remember that people are the key to business success. At Confie, we put our people and culture above everything else. Learn more about us today, contact us or give us a call at (714) 252 2500.
