News & Resources

Part 2: Five things I’ve learned as an M&A advisor

Tony Richardson, Managing Director

Last week, we published Part 1 of this blog series. In it, I shared five essential lessons I learned while selling the company I founded, Xtreme Consulting Group. Since its acquisition in 2018, I have served as an M&A advisor to many entrepreneurs undertaking the same journey. Through managing dozens of transactions as an M&A advisor, I have gathered the following additional insights that I wish I had known when commencing my own sale.


  1. How to boost valuation by focusing on key metrics. Each industry has key metrics that investors use to assess the value of a business. Understanding key metrics, including what baselines to expect and how to improve them, will help you achieve a premium valuation for your business. Seeking an early understanding of these metrics allows you to set a culture and incentive structure that motivates your management team to achieve specific goals.


  1. The importance of understanding your buyer universe. The potential buyers of your business fall into two groups, strategic and financial acquirers. Each has different incentives and motives for acquisition. To reach the best outcome in a sale, you should get to know both groups and what attracts them to acquire. It can be overwhelming to identify the appropriate relationships to cultivate, so finding a well-informed M&A advisor with industry knowledge and established relationships in each group is prudent.


  1. How to know if your financials will withstand due diligence. Clients frequently ask us if we think their financials are in good enough shape for their company to sell. “Do I need reviewed or audited financials?” “How sophisticated must my accounting team be?” “How quickly should we close out each month?” Initiating a sale process without credible financials can be a quick path a disappointing result. A trustworthy M&A advisor will analyze your financials and determine if they simply need fine tuning before your business goes to market, or if they need a full review by a reputable accounting firm.


  1. The wide variety of exit opportunities available. Many exit scenarios exist for business owners, including some they may never have considered. Sellers can choose to sell their whole business or retain a percentage of ownership and sell a minority or majority stake. They could choose to sell to a larger company in their industry in a strategic sale or to a financial company, such as a private equity firm, in a financial sale. There are often opportunities for sellers to “roll” their own equity into the new, combined entity post-transaction. There are many options that can provide you with the solution you are seeking based on your end goal. A good M&A advisor is in the business of creating options so that you can choose the one that’s right for you.


  1. How an M&A advisor can bring significant value to the seller. Business owners often come to me with an offer for their business already in hand and ask me why they should consider hiring an M&A advisor. My response is to ask them how much value they put on certainty of closure, attaining premium valuation, and keeping their time free to operate their business until the sale closes. The M&A process is complex and time consuming. Speak to an advisor and find out what you don’t know. Is your business ready? Could some small tweaks significantly improve your company’s value to potential buyers? Are there other buyers that should be included in the process to make it more competitive and increase offer prices? A reliable M&A advisor will guide you through the process and ensure that you procure the best outcome for yourself and your business.
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