Hiring Advisors for Your Transaction Team
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Key Takeaways:
- Understand the different types of advisors you will need to sell your company
- Learn what to look for when hiring advisors
- Learn how to leverage the strengths of each different advisor
- Learn the benefits of having diverse opinions to help you make the best decisions
Who should be included in your transaction team when selling your company?
Most successful entrepreneurs are religious about one of the cardinal rules of a good business: control your expenses. As a result, many entrepreneurs have an allergic reaction to paying accountants, lawyers, or investment bankers for services related to the sale of their business because it is hard for them to understand the value these parties bring to the table.
For most business owners their business is their primary asset; therefore, hiring a team of experts when it comes to the process of buying or selling a business is a good investment because competent, experienced advisors can help you avoid the expensive mistakes that can often occur during the course of a transaction. When done skillfully, a great advisor team can increase the value you receive for your business, get you the best terms, ensure you find the best buyer for your business, and dramatically decrease the odds that you will waste 9-12 months on a busted deal.
The team
To prepare for and execute your sale transaction, you will need five types of advisors:
- a financial advisor
- a transaction attorney
- an accountant who knows your financials
- a quality of earnings review firm, and
- an investment banker
Each of these individuals or firms plays a very specific role in taking your company to market and in representing you all through the deal process.
Financial advisor. Find a financial advisor who specializes in working with entrepreneurs, preferably ones with a net worth comparable to yours. Entrepreneurs have very unique needs and opportunities, and financial advisors who regularly or exclusively work with entrepreneurs will know how to spot the specific issues and opportunities you can leverage both before and after a transaction. We also recommend finding advisors where the client-to-advisor ratio is less than 20:1. This will ensure you get appropriate attention and care.
Transaction attorney. Many business owners believe the corporate attorney who has worked with them for the past 20 years is the right choice to represent them in a sale transaction. This is sort of like having your general practitioner perform your heart surgery when you need it. While your corporate attorney will definitely play a role in the transaction, we strongly recommend hiring a transaction attorney who specializes in transaction work and has closed hundreds of M&A transactions. An attorney who specializes in M&A might cost more per hour than your corporate attorney, but because they know how to quickly address and resolve the common issues that come up in a sale transaction, they will be much more efficient in getting your transaction closed in a timely manner, reducing your overall expenses.
Your accountant. When a buyer conducts due diligence, they are going to dig deeply into your historical financials and taxes. Being able to call on the accountant who has worked on your financials over the past 3-5 years will be very helpful in answering buyer questions and resolving issues regarding your financials and taxes. Having your tax accountant can also help you plan to minimize income taxes upon a sale. They will know the details of your taxes and can work with your attorney and investment banker to position the company in a way that minimizes transaction taxes.
A quality of earnings firm. Every buyer today in any transaction over $10-15 million is going to conduct its own quality of earnings review. We tell owners this is like having an audit, only cubed. It is an exhaustive review of your historical financials, including identifying any normalizations, add-backs or adjustments. It is performed by an outside firm who has an incentive to find every possible issue with your financials that a buyer can use to potentially reduce the purchase price. It is a painful process.
If you want to increase the purchase price you receive and preserve that price throughout due diligence and the purchase agreement negotiations, you will need to hire an outside quality of earnings firm to prepare a seller’s version of a quality of earnings report.
A seller-prepared quality of earnings report will identify any potential financial due diligence issues before you ever talk with potential buyers, giving you adequate time to address them or at least prepare answers for the buyer to minimize their impact on the deal. In addition, a firm performing a quality of earnings review will identify positive adjustments to earnings that allow your investment banker to represent better historical financials than are in the company’s audit or current financials, resulting in higher valuations.
An investment bank. An investment bank will be the quarterback for your deal process. They will work with you to find outside counsel, quality of earnings firms and other advisors, collect and organize due diligence materials, identify and help resolve potential diligence issues, craft the story you will take to market and put your Confidential Information Memorandum together, identify and contact potential buyers, manage the bid process, manage the due diligence process, and facilitate negotiations and resolve issues to close the transaction.
A good investment bank will not only drive the valuation of your business up by running a competitive process and negotiating to maximize deal value, they will also know how to quickly address and resolve deal issues to make sure you don’t waste time on a busted deal.
Wrap up. Hiring a great team of advisors will make your deal process more efficient, more profitable, and less stressful for you. Make sure to talk with references from each of the potential candidates for the different roles identified here – they can tell you how it was to work with that advisor and give you confidence you are making the right decision.
Disclaimer:
The views expressed represent the opinion of Class VI Partners. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. Class VI is a registered broker dealer, Member FINRA.
About the Author:
Chris Younger is the Co-Founder and Managing Director for Class VI Partners, a financial services firm focused exclusively on business owners, and CoPilot Analytics, which develops applications and tools to help business owners drive more value in their business. Chris has more than 25 years’ experience in executive management, marketing, sales, law, and mergers and acquisitions. Chris was a co-founder and President of the nation’s largest provider of converged communications solutions, during which he led over 25 acquisitions and their subsequent integration. Previously, Chris was an associate with the law firm of Wilson, Sonsini, Goodrich, and Rosati in Silicon Valley, and clerked for the Honorable Jesse Eschbach of the U.S Court of Appeals, Seventh Circuit.
