As the US economy seems to linger in its two and a half year hangover from the worldwide financial crisis that began in 2008, one of the symptoms of the “night before” has been a slowdown in merger and acquisition (M&A) activity. While logical to conclude that the slowdown in M&A activity is being driven solely by business owners concluding it is a bad time to sell, I believe there is a second factor at play—increased buyer scrutiny.
In other words, there are business owners who want to sell but cannot do so successfully in the current environment due to the increased demands of buyers during the valuation, negotiation, due diligence, and documentation stages of the process. In an environment such as this, the right team of outside advisors can make the difference between a successful transaction and a failed one.
Ideally, the team of outside advisors should include the company’s attorney and outside accountant, as well as an M&A advisor, preferably with experience in your industry. To the extent that the company’s attorney and/or accountant do not have experience in M&A transactions, additional resources should be brought in to provide legal, accounting, and tax advice. While the roles of the attorney and accountant in a transaction are generally well understood, the role of the M&A advisor is often unclear.
There is a common misperception that M&A advisors simply “broker” deals. In other words, they connect potential buyers with sellers and step aside, or worse, they work both sides of the transaction, rather than zealously representing just their client. Anyone who has been through a sale or acquisition process knows, there is a lot more to a successful transaction than simply getting the parties together. A successful M&A transaction is not an event—it is the culmination of a lengthy process (some might say a journey). And one of the best ways to ensure a successful journey is to have an experienced guide that has traveled the same route before. The role of guide on an M&A journey is best served by an experienced M&A advisor.
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