When considering selling their businesses, company owners unfortunately fail to ask themselves the fundamental question: Should I hire an adviser to organise a successful sale?
Around the world, hundreds of companies change hands every day. Although the former owners are experts in their lines of business, they need not necessarily be experts in corporate finance or company divestitures. Many owners sell their companies once in a lifetime, and in line with the famous saying that “practice makes perfect”, we can be sure that practising only once is not enough. Therefore, we believe that the right choice is to hire someone who does so on an almost daily basis.
The main reasons why we recommend hiring an adviser for the sale of your company are explained in the following article.
Economising does not always pay off
M&A advisers are often regarded a costly intermediary that introduces the parties and brings the purchaser to the negotiating table. It is no surprise that the seller considers the adviser’s services too expensive in view of the latter’s added value in the selling process.
However, an experienced and sound adviser is the exact opposite. Owners may in fact be able to sell their companies by themselves. Nevertheless, they can make a number of very costly mistakes on their way to signing the transaction documentation.
The most common mistakes in transactions without the involvement of an adviser include:
- Poor or no awareness of the company’s price before the selling process begins;
- Non-existent documentation for presenting the target company to potential buyers;
- Sale to a wrong purchaser;
- Unsuitable transaction structure;
- The sale is carried out at the wrong time;
- Underestimating the length of the selling process;
- Wrong choice of prospective buyers to be contacted.
Time (and knowledge) is money
Very often we encounter situations when the mistakes listed above have an adverse impact on the results of the transaction. Owners who have no idea about the value of their companies enter the market unprepared and are more likely accept the first offer they think is acceptable. Experienced buyers (or their advisers) will quickly discover the sellers’ lack of experience and will propose a seemingly neutral structure for the transaction, which in fact can be more advantageous for the buyer.
If the seller avoids all the pitfalls described above and closes the transaction, there is one more key factor speaking in favour of hiring an adviser – and this factor is time. The average selling process takes from four to nine months and approximately 500 to 600 hours, which means some 15 to 20 hours a week. Shifting this burden to the adviser allows entrepreneurs to continue concentrating on the thing they do best – doing business in their industry and increasing the value of their company.
What specific benefits can hiring an adviser bring?
- Business contacts, personal connections, advising experience. Advisers will bring you more prospective buyers and create a competitive environment, which increases the value and quality of the bids. A high-quality adviser knows the market and is able to choose an adequate form of presentation of your company and tailor it to diverse groups of prospective buyers.
- Preparing your company for sale. An adviser gains an in-depth knowledge of your company, reveals skeletons in the cupboard (if any) and will propose a timely solution for dealing with them.
- Familiar with financing opportunities. A majority of purchase prices are not paid 100% in cash upon sale. There are many ways of structuring payment of the purchase price to overcome the differences in ideas about the price between the seller and the purchaser. An experienced adviser is able to offer such a compromise.
- Trustworthiness when contacting potential buyers. Engaging an adviser shows the other party that you are committed to take the entire process seriously and provides it with a certain degree of trustworthiness in negotiations.
- Setting a recommended price. If you need to sell fast, the adviser knows how to advance the process while taking care that you do not sell cheap.
- Openness. The adviser is a neutral party and can speak openly in situations when your personal involvement could have an adverse impact on future relationships with the purchaser. This is extremely important in cases when you decide to be active in the company under the new owner.
- Tactics in business negotiations. During negotiations, a number of transactions come to the point of “near death”. The adviser knows where to push further and where to slow down to boost the negotiations.
- Check on prospective buyers. During the transaction you can come across a prospective buyer whose only concern is to see inside your successful business. With their experience, the adviser is able to discover such individuals and will not provide them with any information that could harm your company.
- Contacts in other fields. Last, but not least, the adviser has several professional contacts that allow them to optimise for you’re the costs of services usually associated with the selling process (such as legal advice and valuation opinions).
Don’t be alone in this
Hiring an adviser is not only a way to achieving higher proceeds on sale. The adviser becomes your intermediary, who will use all of their experience to lead you and the purchaser to the desired target.
During the transaction, you will have the invaluable opportunity of discussing all your decisions, ideas and doubts regarding the process with someone who has the experience and information necessary for you to make an informed and right decision.
Since it was established, the RSM CZ Corporate Finance team has conducted dozens of successful transactions for both sellers and buyers. We can support you in one of the most important moments of your career and will do the most to ensure you are satisfied with the result. If you wish to discuss this topic in more detail, we would be pleased to share our experience with you. Please do not hesitate to contact us.