Mergers and acquisitions are becoming more prevalent in today’s highly competitive corporate environments. As a business strategy, the M&A process can change the way companies function, upscaling the efficiency of operations at an exponential rate. Nonetheless, M&A are complex processes which require expert business skills to be performed successfully.
According to the Harvard Business Review, up to 90% of mergers and acquisitions end in failure (source). Without proper guidance, companies may be at risk of compromising their M&A efforts. This may cause businesses to waste time and resources, even potentially facing bankruptcy.
What is an M&A advisory?
A merger and acquisitions (M&A) advisory is a special type of service available to companies who are undergoing some kind of reform of their operations. An M&A advisory firm’s purpose is to guide companies looking to buy, sell, or perform other restructuring processes.
M&A advisory firms tend to be classified into three categories:
- Business brokers: These companies focus their advisory services on smaller clients. The value of the transactions performed by a company working alongside a business broker rarely go above the $ 5 million threshold.
- Middle market firms: M&A advisors of middle market firms work with companies with a stronger foothold on the market. The enterprises working with this type of M&A advisory firm are valued in a price range between $ 5 million and $ 75 million.
- Bulge bracket investment banks: For transactions higher than $ 100 million, companies might look for advisory partners experienced in investment banking. However, if the circumstances allow it, these M&A advisors can also work with smaller clients. This may happen while performing a roll-up strategy, for example.
How does a merger and acquisition advisory firm work?
An M&A advisory firm provides guidance and assistance to client companies as they perform transformative operations. An experienced M&A advisor uses their skills and expertise to help companies understand the pros and cons of their decisions in relation to buying, selling, and restructuring company assets.
The advisory services supplied by M&A advisory firms can have a drastic impact on the results of transactions. Good M&A advisors play a crucial role in the success of many corporate buyouts and takeovers.
Why and when should small businesses consider M&A?
Strategic business decisions like M&A must be performed either when it is necessary or when there is a high opportunity for successful scenarios. Businesses often need to expand, contract, or transfer a large part of their assets. A good advisory firm can let a company know when it is best to undergo an M&A process.
The following scenarios are examples of when it may be favorable for a business to pursue M&A:
- A firm may increase its market share by taking over a competing company.
- If two companies in a complementary business line merge, they can drastically improve business turnover.
- A business in critical condition may choose to either partner with another company or sell its assets before going down with a loss. M&A can ensure the survival of declining businesses.
- Undergoing corporate restructuring operations may be advantageous to draw in new shareholders or acquiring parties. Through a restructuring of equity and debt, for instance, companies may reduce the cost of loans, making themselves more attractive to prospective buyers.
- A company with a surplus of capital to invest may find acquiring another company more profitable than expanding its own operations. The smaller business being acquired also benefits, as it receives an injection of capital to rapidly scale the efficiency of its operations.
Why is it challenging for small businesses to find M&A advisory firms?
Due to the lower market value of their operations and other factors that stem from it, it is harder for the business owners of smaller companies to catch the attention of potential buyers. The lower prospective commission fees make this type of company less appealing to M&A advisors.
Circumstances that may affect a company’s capability of attracting M&A advisors include the following:
- Size of operations: Naturally, the dealing value of smaller companies is lower than bigger firms. Many M&A advisors find these companies unattractive, as the financial gains of helping smaller companies will be substantially lower than those available at a larger level.
- Geographic location: A small business may be held back by a particular situation at a regional level, especially when looking for local partners. It may be hard to find good M&A advisors with expertise in that region, and not many advisory firms work at different regional levels.
- A limited scope: It may be harder for smaller companies to align their capabilities and corporate culture with those of prospective buyers. Products and services offered between two parties may be difficult to align, further complicating the merger and acquisition process.
- Reduced access to partners: A company might be unable to find an M&A advisory firm due to a lack of knowledge. If a business owner’s perspective is restricted to the nature of the local market, then chances to have positive contact with the M&A process diminish.
How M&A advisory firms help small businesses
Advisory partners can supply small companies with a wealth of information necessary to make the right strategic business decisions. An experienced M&A advisor can share his skills, expertise, and network connections to provide companies with the best M&A opportunities.
When a company works with a good advisory firm, it has access to a wide range of services. An M&A advisory firm can assist small businesses in the following ways:
- Identify which companies may be competing for the attention of potential buyers. Through the use of their network, a financial advisor can find suitable deals and learn more about the competition while keeping the pursuing firm anonymous.
- Appoint the right people to handle M&A processes. Professional services necessary for M&A include legal and financial services, which a small business may lack access to.
- Perform a business valuation for any unit relevant to the M&A deal.
- Assist in the necessary negotiations with financing firms, offering financial advice, and arranging the finances for the deal.
- Give prospective buyers such as shareholders and counterparties an initial subject offer.
- Negotiate deals. It is very possible that the counterparty of a merger or acquisition is also working through an M&A advisory firm.
- Create a structure for an efficient transaction process, including the scheduling of payments.
- Finalize the legal terms necessary for the deal. These may include contracts, warranties, and indemnities.
- Writing a draft of the terms of the deal, as well as drafting other strategic business decisions. An experienced M&A advisor can estimate when it is best to announce a deal to the public or when to inform employees about structural changes that may have an impact on their duties.
- Assist in post-acquisition integration across operations and production lines.
4 tips to choose an M&A advisory firm
When choosing an M&A advisor, it is important to know you can trust him. The people who are giving you financial advice must familiarize themselves with your company’s business type, culture, and transactional goals. After a first meeting with a potential M&A advisor, you should consider whether that person inspired trust in you or not, as they will be performing negotiations on your behalf.
An advisory firm or partner with experience in your specific field will have a much higher chance of producing the best results. Not only will an experienced M&A advisor be well acquainted with the nature of your business, but he will also have a robust network of contacts to help you acquire the most beneficial potential buyers.
Since your M&A advisor will most probably handle negotiations for you, choosing someone who excels at this is of paramount importance. Instead of looking for people aggressively looking to sell, a company should look for an M&A advisor who considers what is the best win-win scenario for all parties involved.
Your M&A advisor should be clear and straightforward with all the information regarding transactions. The success of an M&A advisor relies on the success of your M&A operations, so it is in their best interest to be transparent about changes to the transaction process, even when negotiations are dire. Good M&A advisors know that it is better to be well informed about negative results than to have no knowledge of them.
5.Merger and Acquisition Services
If you’re looking to sell your business, then it is beneficial to join a professional network. Good partnerships are incredibly important for any organization, and that is particularly true when it comes to the M&A process. By having strong connections, a business owner can sell a company for the best profit margins.
Nubinno Connect is a business development network specialized in connecting pharma companies. By using the platform, businesses can access new management and negotiation opportunities. The expert team at Nubinno is ready to provide guidance and consultation services, helping businesses undergo M&A operations effortlessly. Companies partnering with Nubinno can expect to have all their M&A needs addressed.