The reality is you could probably do a lot of things that you’re not qualified to do (e.g., represent yourself in a legal case, change your oil, or something that seems more straightforward such as rewiring your home). In the end, the savings don’t outweigh the risks, which is why we hire experts with the knowledge, experience and tools to address specific requirements. So, in the end, you could certainly take on M&A, but at what risk and ultimately at what cost?
The critical point here is that the objective isn’t just to sell the company, it’s to find the best blend of value and fit / alignment in a sale – two similar sounding objectives that require a completely different set of skills. There is a big difference between an exit (sale) and a valuable exit – and many founders conflate the two, unaware they are assuming value and fit are somehow a given.
For most founders / owners, an exit is a once in a lifetime opportunity to capitalize on years of risk and hard work, and it can be the most pivotal months of their lives. This is not the time to learn on the job – after all, it’s the most valuable transaction in your life. In M&A, each mistake can cost hundreds of thousands or millions of dollars, which might quickly add up to 10-20% of the value of the sale. This is value that the owners created but was given away because they didn’t fully understand the implications of decision or the objective(s) of the Buy-Side, or even worse, they wanted to “save money” by not utilizing qualified M&A advisors.
Even the smartest founders / owners have gotten themselves in over their heads on attempted acquisitions. Concluding a transaction is a full-time job when you know what you are doing, but when your advisor is essentially Google, in an attempt to understand what’s being asked, it’s all-consuming. All the while, the business isn’t getting the attention it needs to continue its profitable growth – which is the underpinning of the target valuation. For example, if the M&A distraction results in just $100K less EBITDA, with a 7X multiple, this is $700K ($800K with the $100K foregone EBITDA), so a really smart founder / owner will spend their time ensuring the valuation basis (EBITDA) is as high as possible. In our work, we’ve experienced owners whose deal value was halved simply because they wanted to “do” M&A rather than focus on maintaining their pipeline and profitability.
The M&A process is a very prescriptive dance, designed to elicit information from the other party in order to facilitate a continuum of informed decisions all the way to closing. Experienced M&A practitioners know what is needed to make their Buy or Sell-Side decisions and what is “market” – in terms of valuation and everything else that goes into a transaction. Selling a company isn’t a one-person job; it’s a collective effort of M&A advisors, lawyers, and accountants that are focused on maximizing the value of the transaction while also ensuring the post-acquisition environment is conducive to achieving the intended objectives for the strategic sale of the business. By electing to lead the effort of selling your own company, you are purposefully entering a high-stakes negotiation with asymmetric information – where the balance of power clearly lies with the Buyer precisely because they are the primary source of M&A information for the Seller.
A Sell-Side advisor ensures the information flow is symmetrical, knows the market and potential buyers therein and deploys the tactics and tools that will help the Seller achieve their goals. Granted, they will cost a few points on the valuation, but a Sell-Side advisor that knows your industry will get an order of magnitude more value than if you did it yourself.
M&A holds a certain allure – everyone wants to do a deal – and it is easy to convince yourself that you can figure it out. Resist the urge as the risk that it will be a costly learning experience is quite high. Select highly qualified M&A advisors that will engage founders / owners in the process while affording leadership the ability to concentrate on what they do well, which is managing and growing a profitable business.