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M&A: Athletes Have Agents, and So Should You

Just as pro athletes use agents, business sellers should use M&A advisors.By Gordon Adelsberg, President, Adelsberg Consulting

“If you build it, they will come.” Unfortunately, that’s not how it works in the real world. Selling a business is similar to a free agent professional athlete looking for the best offer: It’s a once in a lifetime opportunity, and mistakes will cost you millions of dollars. Those who are convinced that “do it yourself” is the right path generally lose 25% of their deal value. (1)

So why is an M&A professional so valuable? I had a long chat with Jonathan Rubin from the Westbury Group. They’re a full-service investment banking shop based in Westport, CT. At the core, their role is to get business sellers the best deal possible. We discussed the process of selling a business, and why it makes sense to have someone who does it for a living guide you through the transaction.

The Investment Bankers and M&A professionals...

  1. Have a Disciplined Process. A good investment banker (IB) has years of experience and brings a disciplined and structured approach to a sale. Even the most experienced business owners may only sell a business once or twice in their careers, but a good investment banker has been through the process scores of times. Your IB team will not only help you prepare your accounting, financial, and legal reporting for a sale, they’ll also guide you – step by step – through the due diligence, marketing, negotiation and closing.
  2. Make Operational Improvements, which is where my team fits in. Each improvement can conservatively yield a 10X ROI (Click to learn how.) For example, a $25,000 lean manufacturing engagement will easily yield more than $50,000 in savings. If you sell the business for 5 times EBITDA, you’ve made another $250,000 for yourself. Implement these improvements early so the increased profitability is “baked in” to your financial statements. It's not a one-time windfall.
  3. Know Marketing. Your investment banker knows how to create a competitive market for your business. A business owner has a great customer network for the company's products and services, but probably knows only a handful of potential buyers. An investment banker will get your company in front of 20 – 2,000 potential buyers, including both strategic buyers and private equity firms. Your banker is experienced at articulating your competitive advantages, whether those are patents, proprietary products and services, strong consumer brands or a top notch management team. When more and more buyers see the value in your business, the bidding war starts and your sales price can go up dramatically.
  4. Protect Your Relationship. One of the most overlooked aspect of a good investment banker is that they insulate you from problems with the buyer. They protect the relationship and prevent post-close strife. We’ve all heard pro athletes say, “My manager handles the negotiations, I’m just concentrating on being the best ballplayer I can be.” The happiest athletes are those that don’t just go after the highest bid, but those who get the best deal. The same holds true for management teams. It’s not like selling a house where you walk away after the transaction. 

For example, The Westbury Group represented a manufacturer that turned down a $12.7 million offer. After improved marketing, the owners got bids as high as $19 million, but accepted an $18 million offer because they were more comfortable with the buyer. Even with the lower bid, the business owners got an enormous ROI on the money spent on the professional M&A advisers.

Most reputable firms charge a retainer, but make most of their compensation through a success fee, typically a single digit percentage of the deal. Not bad for a 25% improvement in the selling price! So are you penny wise and pound foolish? Let’s leave “Do It Yourself” to screwing up our home improvement projects. When it really counts, work with the professionals who can make you rich.

Gordon Adelsberg is Principal at Adelsberg Consulting and Lean Six Sigma Coach at Go-Lean-Six. He can be reached at gordon@adelsbergconsulting.com or @WeTeachGeeks.

Jonathan Rubin is a Partner at Westbury Group, the Investment Bank for Entrepreneurs. He can be reached at jrubin@westburygroup.com.

(1) “Does Hiring M&A Advisers Matter for Private Sellers?”, Agrawal, Anup and Cooper, Tommy and Lian, Qin and Wang, Qiming, (December 7, 2016). Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2400531 

Short description: 
For a relatively small fee, the right mergers and acquisitions adviser will make you much, much wealthier.