Today’s M&A market continues to be vibrant putting ever-increasing demands on M&A advisors, who must prepare key materials and research multiple sources of information to identify the best potential buyers. They must foster the best possible matches and ensure that only quality buyers are presented. Preparation and exhaustive research are critical to achieving this end.
Due Diligence
An M&A advisor must have a deep understanding of the business before they agree to represent a seller. This is the only way to properly match a seller with the right buyer. Advisors must look at key areas which include:
- Source of Customers and Competitive Landscape: Knowing how customers are identified and sourced for the business’s products or services offered, how large is the industry in which it operates, and who are the primary competitors is key. Understanding the customer, how they are accessed, and what the competitive landscape looks like are critical. Does the business have a direct sales and marketing effort, use social media, a website, telemarketing, and does it use a customer relationship management system? These can all provide insight as to how leads are generated and as to what kind of potential exists for future growth.
- Financials: Without quality information, timely reporting, and a complete and accurate picture of the business’s historical, current, and future financial position, neither predictability and sustainability of earnings or value can be accurately assessed.
- Seller and Buyer Verification: Ultimately, valuation is a proposition of strategic fit. M&A advisors must understand the goals of each party as much as possible, so that attention and conversation may be directed to optimize value for the seller. Vetting both buyers and sellers is key to offering value to both.
- Operational Verification: Understanding the operations and identifying areas where there may be opportunities for synergy and improvements can help in outlining the value proposition for prospective suitors and in negotiations for optimizing value
- Seller Psychology: Why is the seller selling? Having a clear understanding as to the goals and motivation of the seller(s) is key in negotiations and in establishing expectations. Do the owner(s) have reasonable goals, and a reasonable understanding of their business’s value? If not, what can be done to shift expectations?
A Holistic Understanding of The Business
Effective M&A advisors have a keen understanding of the business. This allows them to identify areas for improvement, as well as areas of strength. Moreover, a holistic understanding allows better matching of sellers to buyers by communicating the unique and often intangible value the business offers.
Legal Issues
Every transaction has its own set of legal complexities. An understanding of these issues means fewer mistakes, surprises, and lost opportunities. Identifying and avoiding common legal pitfalls is a crucial step in determining whether a business is even a viable target. Legal knowledge and experience can fill in crucial gaps in both parties’ experience and knowledge.
Transparent, Honest Marketing
Marketing is all about presenting a business in the best possible light. That doesn’t mean it is acceptable for a marketing strategy to be misleading. Do not give a hard sell. Instead, educate buyers about the unique opportunity presented so that they may assess whether the business is right for them. When presented with the right information, the right buyer will see the value of the business without heavy-handed sales tactics.
It’s never an easy task to connect the right seller to the right buyer, which is precisely the reason why sellers need advisors. Preparation and skill is a key predictor of the end result.
ABOUT WINDWARD ADVISORS
Windward Advisors, LLC is a sell-side, buy-side, capital raise, and corporate growth advisory firm. Windward specializes in helping business owners better prepare their businesses, with the intention of increasing shareholder value by providing strategic planning and corporate growth advisory services, and by representing owners in the execution of sales, acquisitions, and financial structuring transactions. Windward is an advocate of ensuring that business owners are knowledgeable about their alternatives and we work closely with other trusted advisors to assist owners with properly preparing before pursuing transactions.
Steve Howell showell@towindward.com and Barry Johnson bjohnson@towindward.com
Co-Founders Managing Directors
(804) 784-7191
www.towindward.com