If you’re planning on selling your business for a few million dollars or less, you’ll most likely use a business broker or post your business for sale online. However, if your business is worth between $5M-$50M you may want to hire an M&A Advisor. If your company is worth $25M-$500M you’ll likely want a boutique investment banker to drive the best outcome.
Please note: This article was written primarily for business owners with EBITDA above $2M or ARR above $1M. Not sure if you fit into that category - check out our article on company valuations or try our free valuation calculator first.
You know your business inside and out. It’s your baby, after all—you built it from the ground up.
But selling your business is a different game with a different set of rules. That’s not to say you can’t navigate an M&A (Mergers & Acquisitions) process yourself, but it’s a full-time job that requires substantial industry knowledge and M&A expertise.
The opportunity value is high, but so are the risks. If you choose your M&A representatives unwisely, you could spend your valuable time and money educating sub-par Investment Bankers or M&A Advisors who fail to deliver. And if they happen to get your deal over the line, it could be for significantly less than what your business is actually worth.
This isn’t something you want to get wrong. If you’re like most business owners, this is your single most valuable financial asset. You only get one shot at selling your business, so make it count!
Therefore, if you want to be successful, you need to align yourself with the best possible team of industry specialized M&A experts. This team will give you the best chance of maximizing your exit.
We like to compare building a successful company to being the Owner or General Manager of a professional sports franchise. You've won and lost plenty of games, but as you approach each new season all that really matters is setting up your team for a run at a championship.
Look at what the Tampa Bay Buccaneers in did prior to the 2020 NFL season. Coming off of a 7-9 season, they were contemplating sticking with Jameis Winston at QB or trying to sign Tom Brady. They ultimately signed the best NFL player of all time and he delivered a Super Bowl to the city of Tampa Bay the following season.
In the NFL you have to gamble big, spend draft capital, guarantee signing bonuses and sign long-term contracts. However, when selling your company, you don’t have to pay the “Tom Brady of M&A” until he or she actually wins the Super Bowl for you! It's a no-brainer. Get the best M&A experts on your team that give you the best chance of winning your own championship.
Now the question remains -- should you hire an investment banker or M&A Advisor to lead your team of M&A experts?
It’s important to note that there’s a lot of overlap between investment bankers and M&A Advisors.
First of all, they both have the same goal in mind: they want to help you sell your business in exchange for a success fee. Because they earn a percentage of the sale, their interests are aligned with yours—at least in theory.
Hiring an industry specialized investment banker or M&A Advisor gives you a better chance of selling your company and selling it for a premium. This is thanks to their superior industry knowledge, buyer relationships, negotiating skills and expertise (again, in theory).
Whether you hire an M&A Advisor or an investment banker, it’s important to know what you’re looking for. We recommend seeking out the following attributes:
Track record of success:
When you're selling your business, you don’t want the “B-Team” leading your M&A strategy, which unfortunately, we often see as a kid fresh out of an MBA program creating your marketing materials at your local generalist investment bank. The right firm should have a recent track record showing more than one or two exits of companies that look just like yours in terms of industry, business model and size. You should also ensure they have consistent sales success and a reputation for exceeding each founder’s expectations. Anyone can get lucky with a moonshot now and again, but the right M&A expert will have demonstrated success of selling numerous companies over a long period of time in your industry.
Relevant industry knowledge:
It’s not enough for an M&A advisor or investment banker to have deals under their belt—you need experienced M&A experts in your industry. The more specific their knowledge base and industry relationships with CEOs, CFOs and corporate development groups, the better off you are. For example, if you’re trying to sell an InsurTech company, make sure you hire a well-established, insurance technology specialized, M&A expert. It may feel like you’re looking for a needle in a haystack, but they are out there and Exitwise can introduce you to the top M&A experts in any industry...just ask us.
Attention to detail:
Highly detailed preparation of marketing materials and the data room before going to market can be the difference between getting a deal done or not. It can also be the difference between getting a market price for your business or getting that extra 10%-50% bonus when all is said and done. Attention to detail is important for highlighting the strengths of your business and understanding how each buyer will leverage the assets of your business differently. Most importantly, preparation and attention to detail will reduce deal-crushing mistakes that can happen at any stage of the exit process.
The mark of a successful investment banker or M&A advisor is not only knowing which buyers will pay the most for your company but understanding the deal structures that allow each buyer to really stretch their pocketbooks. Your M&A expert must have a complete understanding of your exit goals and the willingness to put in the work with your ideal exit scenario in mind. Only then can an M&A expert creatively steer complex deal points towards a sale that works for all parties.
Experienced M&A experts create competitive tension between several potential buyers which builds deal momentum and increases offer prices. Although buyers often don’t welcome an open bidding process, creating competitive tension in the exit process is the best way to drive up the value of your company. Once a buyer agrees to the outcome you are looking for, a great M&A expert will quickly guide the buyer through due diligence to help the buyer to close quickly without delays.
Existing buyer relationships:
Strong track records typically mean strong buyer relationships. Strong relationships are forged over time through multiple transactions and trust. Often the top M&A experts understand the strategic objectives of their buyers which means they know what each buyer needs to execute on their current growth strategies. When Exitwise presents a company to the right M&A expert, that M&A expert will often tell us “we already know who is going to buy this company. We know what they are thinking and they will pay way above market because they have to have this one.”
Now that you understand which attributes to look for in an M&A expert, how do you make sense of the variety of professional titles that are out there, and more importantly, how do you know which is best for you and your business?
Investment Banker vs. M&A Advisor
The primary difference between M&A Advisors and investment bankers is the size of the transaction that they manage. Without that differentiating threshold, their services are very similar.
A great investment banker or M&A Advisor will work to uncover all of your business' potential value to maximize your sale price. Historical financials, brand equity, existing business contracts, customer concentration, market competitiveness, IP, projected profits, and more are all factored into their valuation, potential buyer identification and negotiations.
The type of M&A expert you need will be based primarily on where your business falls among the following categories and enterprise value:
Investment Bankers: Focus on the outcome, not the fees
Middle market investment bankers typically work with companies with a value of over $25 million and represent sellers up to $500 million. Investment bankers are generally licensed and regulated by FINRA to ensure each investment banker properly navigates the regulatory landscape. If you are likely to sell your company to a publicly traded company, investment bankers are more easily able to accommodate the needs of publicly traded buyers which have rules and regulations of their own.
Investment banking fees vary and can look expensive, but they are often worth every penny. Transactions above $50 million can command success fees well into the six figures. However, the extra increase in sale price that the right investment banker can deliver will pay for those fees many times over. Therefore, we recommend, with the right investment bankers running your exit process, fees should not be your main concern. Instead, focus on finding and hiring an investment banker who will maximize your sale price with the most seller friendly terms. That’s no easy task but again, Exitwise has you covered.
M&A Advisors: great option for the lower end of the market
Similar to investment bankers, M&A Advisors take a comprehensive and strategic look into the historical financials, operations and future outlook of your business. Their goal is positioning your company most effectively to specific sets of buyers and they typically sell to private financial and strategic buyers.
M&A Advisors typically work with any company with a value of over $5 million, but also represent sellers up to $100 million which means there is often overlap with investment bankers and should not be overlooked.
M&A Advisors tend to be somewhat more consultative and may focus more with clients on the strategy and planning phases as they consider their exit, liquidity, or succession alternatives. While they will go to great lengths to help you optimize your opportunity, you want to make sure an M&A Advisor has relevant market experience in your sector and a track record of success.
The right M&A Advisor will have deep insight into your industry and have a good idea of what your company is worth which means they are able to create real competition for your business by bringing multiple potential buyers to the table.
While M&A Advisors can be transformational to the selling process, they are often small firms that can sometimes spread themselves too thin. Without the right bandwidth, they may not have the time to truly maximize your exit and get your deal over the line. This is where Exitwise comes in. We know what each of our M&A Advisors’ plates has going on at any given time so we can help you hire the right M&A Advisor at any given moment, who will give you the attention you deserve.
For more information about our partner ExitWise and how Mahdlo Executive Advisors can assist in your exit strategy, contact us today.