Do M&A Advisors Add Transactional Value?

2018, 11 Dec | In Selling a Business

You’ve devoted years of your life to building your successful business. You’ve learned from mistakes, relished success, and grown. Now that you’re considering an exit strategy, you may be wondering whether an M&A advisor can help. So does an advisor create tangible value in a sale? The research says the answer is yes.

Do M&A Advisors Add Value?
A recent University of Alabama paper addressed the value added by an M&A advisor. The researchers gathered a pool of 3,281 acquisitions. About half (47%) hired an M&A advisor. After analyzing each transaction by sector, the researchers concluded that business owners receive final sales prices a range of 6-25% higher when they work with an M&A advisory firm.

A Fairfield University paper arrives at similar conclusions. That study looked at middle market sellers who hired an M&A advisor. Eighty-four percent reported that the final price was equal to or greater than the initial price estimate their advisor offered. M&A advisors aren’t just helpful stress relievers. They create measurable value.

But how? And what is the value when you factor in advisory fees?

M&A Advisors: Access to Useful Resources
One of the most important ways M&A advisors create value is by offering resources most sellers can’t provide on their own. An experienced M&A advisory firm can:

  • Improve the seller’s bargaining power, drawing upon informational resources and relationships that the owner might not know about or understand how to use. M&A advisors can create a competitive bidding process and nurture healthy competitive tension that improves bargaining position.
  • Offer valuation expertise that ensures your asking price is not needlessly inflated or deflated.
  • Bridging an information gap. The other side will have an expert team of advisors working for them. You are at a disadvantage if you don’t have the same.
  • Managing the process. An advisor can help manage and oversee the sales process, freeing up owner time and resources to concentrate on daily business operations.

Advisors generally charge fees of 1-6%, depending on the total value of the deal. Even at the low end of value addition, this means that owners who employ an M&A advisor stand to significantly increase profits by relying on expert help. Particularly in the lower middle market, where owners may have few resources and be easily distracted by the daily demands of running the business, a skilled and knowledgeable advisor can confer enormous additional value, and prevent the sale from losing momentum.

About Merit Harbor Capital
Merit Harbor Capital is a client-focused team of experienced advisors with deep expertise in a broad range of industries. Unlike traditional banks that focus on the transaction, we set our sights on the long-term goals of your company – and we provide the personalized service to assist you every step of the way. Our firm is known to provide strategic merger and acquisition investment guidance, corporate finance and consulting support services for boosting the growth of business.