The importance of advisors in the M&A process

The different actors that take part in an M&A operation make up the team of professionals with specific competencies related to the negotiation process.

Why you should consider seeking third-party expertise before embarking on a strategic merger & acquisition?

Massimo Penzo, CEO KNET Project
September 2019

Merger and Acquisition consultants and advisors are sometimes approached with hesitancy, especially by entrepreneurs and executives who have a “do it yourself” style of business. Although it may be possible to handle some things on your own, in the long run and for the protection of your business and the others involved, it is always best to get advice from a third-party expert. Often there is an underestimation of the complexity of the merger and acquisition process as well as a lack of knowledge about the problematic implications of a mis-managed M&A transaction.

Retaining experience from an advisor who is in the business of selling and buying companies helps ensure that business owners don’t approach the sale process naively or ill-prepared. There can be many challenging moments during the process and an experienced advisor will know how to navigate them to help ensure a successful outcome for both parties.

Here are just a few of the valuable services an advisor provides to sellers and buyers:

  • Specific skills and experience: M&A can represent one of the most important moments in the lifecycle of a company, not to mention one of the most important decisions an entrepreneur will make during their career. For this reason, the whole process should be approached from the best angle possible. Collaborating with an advisor means externally acquiring those skills and that specific experience necessary to face the obstacles ahead in the best way possible.
  • Establish the value of the company: an advisor will work with the CFO and owners to evaluate historical performance, assist in recasting financial statements, and run valuation models to establish an accurate value for the company. Instead of focusing one on a single valuation number, an acceptable range may be determined. Compared to other professionals, M&A advisors usually have the most current data on private company valuations. In addition, this phase allows for the terms and structure of the deal to be discussed and agreed upon.
  • Assistance in selecting other members of the transaction team: a seller or buyer may already have legal and accounting advisors. However, it is important that these advisors have experience in deal making. An M&A advisor can often supply the names of advisors with the necessary experience.
  • Confidentiality: during all phases of the process confidentiality is crucial. An M&A advisor will prevent damaging rumours from being spread, both inside and outside the company. Rumours can have potentially dangerous effects and are will compromise the success of the entire project.
  • Attract a larger number of potential buyers or targets: attracting cross border buyers or targets and expanding your reach globally, without limiting yourself to the domestic market alone is not an easy task. M&A advisors are fully equipped to carry out this process and often work with a wide network of collaborators in order to expand their reach. The more alternatives there are, the better the chance for a successful transaction.
  • Preparation of the necessary documentation to market the company: it is critical that the marketing documentation accomplishes two goals. It must create interest in the company, and also provide all of the background information necessary for a prospective buyer to determine whether this company is a good fit.
  • Negotiate details: once an LOI has been drafted, sale details are negotiated. These details include price, terms, structure of the deal, and the due diligence process. Experienced M&A advisors have been through many transactions and their guidance is invaluable in these negotiations.
  • Manage the due diligence process: in order for a due diligence process to be successful, leases, contracts, and agreements must be reviewed. An experienced M&A advisor will be able to offer suggestions about the timing and processes of these events, which will help to maintain confidentiality during this critical stage of the sale process. An M&A advisor should review drafts of the final purchase agreement and confirm that they are in agreement with previous arrangements.
  • Coordinate closing activities: in order for deals to close successfully, documents must be completed and assigned, and a plan must be determined for how the actual change of ownership will transpire

Relying on an advisor during the strategic development phase of a business allows for an objective evaluation of one’s own activity, brings skills and professionalism into a process that aims to maximize profits and, at the same time, protects all parties involved.

To find out more about how we handle mergers and acquisitions at KNET please contact us.