All firms, big or little, follow a business lifecycle that comprises common stages such as startup, growth, maturity, decline, rebirth/innovation/death.
The length of each of these processes might vary based on internal/external causes, but the above-mentioned phases always apply. Aside from the original starting stage, organizations may engage in a variety of inventive and smart business choices and alliances to allow new development, growth, or even survival or total exit or closure via selloff. Mergers and acquisitions (M&A) are among the most critical choices that a company can make.
While the corporate world continues to report on large-scale M&A deals and transactions supported, brokered, and executed by large investment banks and involving large firms, small and medium-sized businesses may find it difficult to identify suitable M&A advisory firms to assist them in such transactions. This article discusses how small and medium-sized enterprises may find the correct M&A advice partners, as well as critical information on the services provided by M&A advisory firms, what characteristics to search for and what actions to take to find the ideal dealing partners.
Why and When Should Small and Medium-Sized Firms Consider M&A?
Strategic business choices are driven by opportunities or necessity. As seen in the business lifecycle graph above, firms go through several stages and may need growth, contraction, collaboration, spinoffs, or even the closure/sale of certain business units or the whole company. A sale by one side creates an opportunity for the other.
There are various circumstances and reasons why a company could contemplate M&A:
- to increase company turnover by acquiring or combining with a firm in a complementary business area
- Increase your market share by acquiring a rival.
- With excess cash, more lucrative possibilities may be pursued by purchasing outside enterprises for higher returns rather than investing in existing businesses for lesser profits or producing lower interest income from idle funds.
- A necessity for survival—loss-making, failing enterprises may have to make difficult choices in order to survive. Instead of letting the firm perish with a loss, collaborating with other companies or selling the business to others may be a preferable option.
- Corporate restructuring—restructuring the stock and debt such that loans cost less, attracting new acquirers or owners.
Why Is it Challenging for Small Businesses to Find M&A Advisory Firms?
- Minimal company M&A needs may be small in size, implying a low transaction value and hence less commission and fees for M&A advisers.
- Small companies may be searching for local/regional partners, yet few M&A advice firms operate at many regional levels.
- Small enterprises’ product and service offerings may be restricted. alignment between two companies, making mergers and acquisitions harder
- Business owners’ knowledge and viewpoint may be restricted, frequently bound by projected local aims and collaborations.
How Can M&A Advisory Firms Help Small Businesses? Services & Expectations From M&A Advisors:
Small company owners may lack the requisite skills and network to identify appropriate possibilities that may deliver the essential strategic turnaround. M&A advice companies may aid because of their knowledge in these areas. The following is a general list of services offered by consulting firms for every M&A transaction. The costs and fees may vary depending on the services chosen. The M&A advice business can help with:
- Finding counterparties who meet the client’s requirements. They use their network to guarantee appropriate marketing or secrecy as required.
- Appointing essential professional services, such as legal and financial services, undertaking due diligence, and so on.
- Valuation of the business unit in the applicable M&A transaction; Establishing a reasonable projected range for the deal’s worth.
- As required, assistance in acquiring the appropriate financing for the transaction; Negotiating with the finance business and providing consulting services as needed
- Making a first offer to interested stakeholders and counterparties, pursuant to the terms of the agreement contract.
- Negotiating the agreement with the opposing party (which may in turn be represented by similar M&A advisory)
- Organizing the transactions in terms of payment schedules and obtaining consent from all stakeholders
- Finalizing the legal provisions of the transaction (including contracts, warranties, and indemnities).
- Creating the deal’s terms, which may include changes to ownership patterns, debt and equity restructuring, and so on.
- Assistance in developing other required strategic choices and timelines, such as when to officially disclose the acquisition in the open market and telling workers if the deal leads in layoffs, pay reduction, or other employee consequences.
- Creating a plan for post-integration services across product and service lines, operations, and so on.
What’s Your Intended Goal and Expectations From Proposed M&A?
It is critical to complete your research before engaging any M&A advising firm, with the primary emphasis maintaining on what you want to gain from the transaction ( purpose).Here are a few key items to consider:
- Which side are you on? Are you aiming to enhance your market share by purchasing or merging with another company? Or are you willing to sell a portion of your company in order to exit? The buyer would anticipate the lowest feasible price, while the seller would expect the greatest offer. Make your expectations clear and reasonable, and agree on them with the M&A partners.
- Are you aiming to enter new markets and grow your market share via M&A?
- Are you wanting to purchase (or combine with) new firms in order to introduce new goods, better processes, or update technology, expand your current product line, and/or increase operational efficiency in order to save money?
- Is your M&A transaction intended to reduce operating expenses and hence boost the bottom line?
- Are you attempting to gain an advantage (perhaps by eliminating your competitors) via a strategic M&A transaction?
- Have you looked into freely available resources such as business journals, newspapers, and web portals (for example, BusinessForSale, BizBuySell) that provide useful information and services such as valuing your business, listing available deals, and venture that may be extremely useful and relevant to your expectations?
Selecting and working with M&A advisory firm:
A business agreement is a once-in-a-lifetime chance for small firms that may make or ruin the whole company. It becomes critical to choose the correct partners. The following recommendations may be useful:
- Maintain an open mind; go global; and investigate all feasible ideas that may seem impracticable at first but might be significant to consider.
- Be selective—do not contact the first company you come across, particularly if you’re seeking for a merger/acquisition opportunity (instead of selling).Remember that selling is simple since your obligation stops once the deal is completed and you get the desired payment. Mergers and acquisitions need a significant time investment for integration and company operations, so make sure you choose the correct consultants who will help you equitably. Shortlist a few companies and evaluate them further based on the following criteria.
- Before contacting the M&A partners, do your own SWOT analysis of the M&A transaction and come up with realistic estimates for the projected deal. Such research can help you negotiate better terms with your advisers on deal appraisal, fees, and charges.
- When it comes to selling a company, most owners rely on their accountants to provide an accurate appraisal. While this is useful for brainstorming, accountants may fall short in other areas like as appropriate marketing, networking, and bringing in interested partners to give you the best rates. To receive the greatest price, choose an M&A counsel who is well-known for these qualities.
- Is the advice company knowledgeable about the markets, geographies, product lines, service lines, technology, or any other relevant factors that are crucial to your M&A transaction? Have they already completed comparable transactions successfully?
- Have the M&A advice firms’ previous transactions been successful? Were there any legal, operational, financial, or other issues that made headlines?
- Don’t lose sight of your goals—is the M&A firm guidance fulfilling your intended goal of entering into the M&A deal? Is there anything that suggests your M&A partners may go after the transaction is done, leaving everything to you? Is the high-level structure of the proposed arrangement fulfilling your immediate, short-term, and long-term goals?
- Pay careful attention to the logic and arguments provided by an M&A advice company when dealing with them and throughout first negotiations. Prepare to have realistic and productive talks with them about transaction size and values, backed up by your own SWOT analysis.
- When selling, the best agreements are obtained when numerous counterparties compete for your offer—does the M&A company guarantee a certain number of bids/offers from diverse counterparties with a minimum threshold amount?
- Selling a company is simpler if the projected price is received. Buying anything is difficult since the acquirer pays a price (which may be high) and also accepts long-term responsibility for running it. Assess your M&A consultants based on their track record of continuous engagements and success with previous customers.
- How much does the advising service cost? While many company owners believe that M&A advice companies charge a percentage of the transaction amount as their fee, the advisers may impose additional costs. This may include a one-time advice cost, a monthly retainer price, a registration and sign-up fee, and so on. To minimize surprises, keep a detailed record of all expenses.
- Not all of the services mentioned are free; some may need a fee. Don’t only rely on M&A adviser websites and booklets; rather, thoroughly explore each subject.
- Work with an M&A advising company: A strong advisory firm values continual engagement, active contributions, and client participation. Leaving everything to the consulting company just because you are paying a fee is not recommended, as it leads to critical aspects being overlooked, assumptions being formed, and a lack of commitment and clarity, all of which leads to future issues, setbacks, and failures.
- Post-Acquisition Services:Unless you are on the selling side, it is critical to concentrate on the integration of the recently acquired or combined firm. M&A consultants often help in developing a high-level integration strategy to be implemented after the M&A transaction. Examine your possible M&A partners’ track record on comparable acquisitions and how successful they have been in getting them executed.
- Choose an M&A counselor rather than a business broker—a broker’s role stops when the transaction is completed. M&A consultants assist with customers to clearly outline long-term strategies, as well as to structure and explain every facet of corporate integration.
The Bottom Line
Large investment banks and tiny boutiques provide M&A advising services, but they may be expensive. It is critical to evaluate them in all relevant areas, including competence, services, and other variables.
Even if they are hired for a long time, good M&A consultants will ultimately go. In the end, it all comes down to the owner. To achieve the goal of merger and acquisition transactions, one must be in complete control from start to finish. Constant engagement, evaluation, and collaboration with M&A consultants will not only make the transaction transparent, seamless, and simple, but will also sharpen the owners’ business acumen and talents for the lessons learned throughout the process.
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