Expert opinion

How a Good Advisor Adds Value to the M&A Process

Jim Shaw, CEO & Founder at Shaw & Co, discusses the value of good M&A advice.

5 minutes
October 19, 2021
Words:
Jim Shaw
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"You should never sell your business without seeking the advice of a qualified, experienced, corporate financial advisor."
Jim Shaw

A few years ago, I met a business owner who had just received what he thought was a rather spectacular offer for his business (his life’s work). He and his family were set up for life while his loyal friends were going to be well looked after. As he sat in my office, eyeing me suspiciously, his only thoughts were of financial freedom and his bucket list.

He was unerringly direct. He had, after all, struck ‘gold’ with his first offer. He told me that I couldn’t help him, that he didn’t need a corporate finance adviser, and that he had only come to meet me as a favour to a – very close – friend who had suggested that he might need some assistance. After all, how hard could it be and what could I add now that he had an offer in hand?

What he didn’t yet realise was a simple truth. You should never sell your business without seeking the advice of a qualified, experienced, corporate financial advisor. If you do then you will certainly regret it, as he very nearly did. Eventually, I persuaded him that I could find him a much better deal and, what’s more, a couple of options from which to choose. Within a couple of months, he had his better deal - double the size of his first offer. This made him even happier.

Jim Shaw – CEO & Founder at Shaw & Co
Jim Shaw – CEO & Founder at Shaw & Co

Adding Value

I was recently again challenged by a potential client who was looking to sell his business. "What value do you really add?" he asked. From where I am standing it is obvious, but new clients, or anyone that has not been through a sale process, are unlikely to see things in quite the same way. So, I came to thinking about numbers I could share to back things up. I thought of three recent examples where we have greatly increased the offer the potential client already had on the table when we had first met:

• Example 1: Offer increased by 65%. ROI on Shaw & Co fees of 16x.
• Example 2: Offer increased by 100%. ROI on Shaw & Co fees of 16.6x
• Example 3: Offer increased by 175%. ROI on Shaw & Co fees of 21x.

This is also discounting the value we add in getting any offer over the line (there is a huge amount of work to be done following any offer to get to completion). What’s more, these are deals averaging £25m in value, so we are talking about very big numbers to have left on the table if the client had mistakenly gone with that first offer.

"You must be confident, assured and patient enough to decline that first offer."
Jim Shaw

Confidence is Key

If you have a good business and are looking to sell then you must be confident, assured and patient enough to decline that first offer. Business valuation is a very subjective matter, and a buyer is extremely unlikely to make their best offer at the first time of asking. One of the greatest tools at your disposal is the chance to create a ‘Fear Of Missing Out’ amongst potential buyers, persuading them that this is a huge opportunity that simply cannot be missed. It’s only when you have created a competitive environment that you will find out what your business is truly worth.

You want many suitors for your hand, and this takes advisory skills that business owners cannot be expected to possess. As in life, you should not accept your first proposal simply because it is a solid, safe, vaguely attractive option that your family have a lot of time for (and besides all your friends sold their businesses ages ago). This is your business and whoever wants it should be passionate enough about it to whisk you off your feet and pay the right price for it.

"You just can’t dive in and put up a ‘For Sale’ sign."
Jim Shaw

Packaging Your Business

So how does an advisor help? A good advisor will start by packaging up your business and making it as attractive as possible to a range of potential buyers. They will seek to draw out the value proposition to catch the eye of your potential audience which takes a level of analysis and real marketing skill that few advisors possess. Your advisor should be able to identify and privately contact buyers eager to snap up your company for a strategic premium. It’s worth noting that, realistically, there are only ever 15-20 real potential buyers for a business based on factors such as sector, location, size and, importantly, strategic rationale.

But perhaps the most important word here is ‘private’. You just can’t dive in and put up a ‘For Sale’ sign as this will cause a commotion amongst your hard-earned clients and polished supply chain, not to mention the fact that you are likely to have loyal employees clambering for the door. Privacy and subtlety are key.

The Right Partner

It then takes a considerable amount of hard work to whittle down interested parties into a feasible shortlist. Don’t forget, it is important to remember that if you have a good business, you are choosing them. You want a buyer who shares your goals in terms of the business, the culture, the employees and its future, with the right price being the proverbial cherry. You therefore need a specialist advisor who is going to host an intensive process, poring over any potential deals and analysing their structure in terms of what you are actually being offered, any liabilities, and, ultimately, when you can expect to get your money.

The Current Market

In terms of the current market then the situation is certainly volatile, driven, unsurprisingly, by the pandemic which has seen so many businesses having to transform their whole business models. The technology sector in particular continues to be a fertile space for acquisitions as larger companies seek to plug the gaps in their offering that have been exposed over the last 18 months. Furthermore, with debt remaining extraordinarily cheap, larger corporates have a huge incentive to acquire good businesses of all sizes as they quickly try to adapt their business models to the changing market.

This is certainly a sellers’ market and is likely to remain so for a short while yet. Just make sure you get the right advice to make the most of what is a once in a lifetime transaction.

We work with UK SMEs and small-cap PLCs that have the ambition to grow their business by acquisition. We often act as an outsourced Corporate Development team helping clients meet their strategic goals through mergers and acquisitions. Our value lies in helping clients build rigour into the acquisition search and execution process. For a confidential, independent, no obligation discussion on how to buy or merge with another business, click the 'Let's chat' button.
Words:
Jim Shaw
 - 
Founder & CEO
Read 
Jim Shaw
's bio

Keep IT Simple (KITS) is a provider of high value IT support and transformation services to public and private sector clients. Find out how we helped with their trade sale.

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