Should You Hire a Sell-Side Advisor or Do It Yourself?
The profession would say, of course, that you should be hiring an advisor, not doing it yourself. But, is that always true?
Chad Byers of Symmetrical Investments, LLC makes some good arguments in his article today for Divestopedia. As Chad says, DIY M&A fails … a lot.
Chad goes on to explain the kind of mistakes that vendors make when they handle the sale themselves:
- Focusing on one potential buyer—usually someone the business owner knows—rather than confidentially connecting with a large pool of potential acquirers. This can hamstring you to the demands of your only prospect.
- Marketing your business poorly or not at all, rather than developing unique and targeted marketing materials for various types of buyers.
- Failing to help your potential buyer through the in-depth requirements of due diligence. This includes not preparing for the sale by organizing your books and analyzing your company’s financial standing before starting the process.
Advisors do more than just advise on the deal, they add value to it. Typically, a business being properly represented benefits from selling at a price differential that is several multiples of the advisor’s fees. In any case, this is a big enough transaction for vendors to play it safe and use advisors who can improve chances of sale and improve the price. Choosing to DIY could be an economy that proves very expensive.
Hiring an advisor has one other advantage – it leaves the business owner free to concentrate on running the business. Vendors often fail to realise just how much effort is involved in the sale process. It can become all consuming and a full time job in itself. Owners handling the sale themselves are likely to get distracted from the important task of keeping the business running smoothly during the all important phase between going to market …and the final day of signing contracts. Not keeping the business running at it peak puts the deal in jeopardy even if you have found a buyer (as buyers tend to pull out of the deal during the several weeks / months of due diligence if they find the business performance is not where the projections said it would be).
And Chad is right in all the claims he makes. However, Chad may be referring to larger deals. At the micro end of the market, it’s often the case that the business owner takes the business to market himself and, in fact, it probably wouldn’t be cost effective to use an advisor.
But at what point does it make sense for a business owner to handle the sale themselves? £100K? £500K? £1m? We’ve answered that one here.