Situation: The owners wish to sell a company. One option is an M&A consultant to assist with the sale. The CEO wants to know about others’ experience. What is the role and value of an M&A consultant?

Advice from the CEOs:

• The first step is to assess the strengths and weaknesses of a consultant to determine their value.
  • The cost of an M&A consultant is inexpensive relative to the value of the business.
  • Accounting rules and M&A practices of public companies do not always apply to private companies. Valuation is affected by variations in profits year-by-year, so consultants typically use 3 to 5 year historical results for comparison against industry standards.
  • Technology companies may have a different value than service-oriented businesses, particularly if significant IP is involved. Look at the creativity of potential consultants’ solutions.
• Consultant alternatives:
  • Business brokers, accountants, and valuation specialists can all offer valuations.
  • Investment Bankers who charge an upfront fee may be more strategically oriented. Typically, the more strategic the valuation exercise, the more dollars involved.
• Be cautious in choosing a consultant.
  • Many business owners spend a lot of time and money with accountants and lawyers when they could save by working with a business broker paid on a commission basis.
  • Business brokers are skilled at getting business sold – however the deal is not necessarily in the best interest of the owner. Brokers are paid by commission and so may not have the best interests of the owner at heart.
• What should you look for in a consultant?
  • Maximization of sale value with a minimal tax exposure.
  • A consultant who will help the owner figure out what they want from their business and exit – who will help to establish owners’ exit objective, a key to a successful exit.
  • A consultant who will help choose the right team of advisors.

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