I am going to start this post with a little know secret that every business owner should know. M&A advisors will do a lot - and I mean A LOT - of work upfront for free.
With that little nugget of knowledge under our collective belts, let's talk about when you should call one of these people into your life. It's early.
The moment you begin the process of contemplating what an exit might look like you can bring an investment banker into the conversation.
Why Might You Want to Do This?
Ugh. If I am only thinking about selling my business, do I really, really want to go through the hassle of getting a professional all riled up? Will they be upset if I change my mind? What if now isn't the right time?
M&A Advisors Will Provide You With a Market Valuation
Even if you don't want to sell your company now, it might be very useful to know what it is worth at the moment. This value can give you a baseline to know where you have to be in order to retire, what you have to distribute to your kids, or to plan to invest in other assets.
In some cases, sellers have a goal amount in mind, "I need $50 million to pay off debts and retire comfortably," but the business is only worth $35 million at the time of valuation. You can use the investment banker as a resource to tell you when the market might be right and the business is performing at a level to give you the value you require. And no, they won't be angry or impatient. A good M&A advisor knows that no one can (or should be) coerced to sell their business. The best way to go about the decision process is to provide information and to weigh all the important factors.
M&A Advisors Can Point Out Issues That Might Become Concerns to Potential Buyers
Conversations with business owners, tours of facilities, and reviews of financial statements provide an M&A advisor with an early look into a business and often uncover items that detract from value. When you have a conversation with an M&A advisor, they will begin to look at your company the way a buyer might and chances are, there are some warts or issues that you haven't spent much time thinking about. Evaluating the strength of your management team is difficult for an entrepreneur to do since he or she probably has only seen a few. Your M&A advisor has seen many, and can tell you where the weaknesses in the team may be and where they might cost you during management presentations to buyers.
An M&A Advisor Can Help You Evaluate an Unsolicited Offer
Business owners receive unsolicited offers and inquiries all the time. If one catches your eye, an owner's reaction is often "now I don't need an advisor," but actually, you probably need one now more than ever. An offer in hand is empowering for a moment, but in reality, with one buyer, you have very little leverage as a seller. In addition, because business owners generally are not selling businesses everyday, it is difficult for them to tell whether the offer they have received is fair.
Here's the Punchline: Use Your M&A Advisor as a Resource
Investment bankers, M&A advisors, and business brokers want to hear from you when you start thinking about selling your company. But because of their history in dealing with many businesses over many years, there really isn't much these financial professionals haven't seen. An investment banker will also have a good sense of valuation detractors in today's market. An asbestos issue? This might be a big detractor or it might not be a big deal. Unfunded pension liability? They've probably seen and dealt with those issues as well.
A good investment banker wants to help you plan for your sale as much as they want to execute it. Calling them in as part of your management of the business is a great way to get market-driven, real life advice from a savvy business professional. And the best part? Most investment bankers will work with you prior to a transaction for free. There will be fees for a sell-side or buy-side engagement, but for lots of early discussions, most bankers will welcome the interaction and the early introduction.