What is The Value of Hiring an M&A Advisor?

By Generational Equity

02/18/2019

When considering the value of hiring an M&A advisor to support the sale of your business, there are two ways of looking at this question and both are equally important:

• How much is your time worth?
• What is the value of getting a premium for your company?

These two interrelated questions need to be weighed closely by any business owner who is even considering finding a buyer without professional advice and guidance.

Hiring an M&A Advisor Part 1: How much is your time worth?

Let’s look at the first question: How much is your time worth? Right now, you are most likely spending 100% of your working hours managing and leading your company. Most of your time is focused on making major decisions that affect your company’s growth and future. You obviously pay yourself a salary and maybe even a bonus now and then. 

But that is not the real value of your time.

Consider this: It will take up to 1,000 hours of your time over a 9- to 15-month period to close a deal with a buyer. That is 1,000 hours taken away from running your company.

In far too many cases, we see business owners neglect operations to negotiate with buyers only for the transaction to fall apart at the 11th hour because the company didn’t reach its projected numbers. Even a 10% deviation from what you tell buyers your numbers will be at close will probably cause them to shave off at least that much from their offer (usually more). It also will most likely open a Pandora’s Box of questions about owner dependence and scuttle the deal.

This reality makes your time worth far more than the hourly wage you would pay yourself in those 1,000 hours of negotiating your transaction with buyers.

Hiring an M&A Advisor Part 2: What is the value of getting a premium for your company?

Then there’s the question of making sure you get a premium for your business. How do you maximize your business’ value?

Ask yourself: How many companies have you successfully sold in your career? If you are like most business owners, you will only sell a company once in your life, and most buyers are experienced. Do you want to learn on the job about how to close a deal with a savvy buyer? 

More importantly, do you know how to successfully negotiate a premium above book value for your company? Most buyers will simply look at the value of the assets on your balance sheet and use that as the starting point of negotiations. If you fall for that trap, you are already in danger. 

In most cases, the true value of your company is in its future earnings, not its fully depreciated assets on the balance sheet. But do you know how to calculate that, much less negotiate that with an experienced buyer? Probably not.

This is not to say that hundreds of businesses are sold every year without M&A advisors.  However, statistics show that if you want a premium, hiring a professional firm is key. 

The good news is that Generational Equity, the leading M&A advisory firm for companies in the lower middle market (companies valued below $100 million) is here to provide you with our M&A services. Our deal teams have extensive experience in working with businesses across all industries and are here to guide you through the most significant event in your professional life – exiting your business.  

If you would like to learn more about how we can help you, call 972-232-1121 or visit our website, provide us with your contact information, and we will be in touch.

And no matter what, don’t undervalue the value of having a professional M&A firm by your side!

By Carl Doerksen, Director of Corporate Development at Generational Equity.

© 2021 Generational Equity, LLC. All Rights Reserved.