What Does an M&A Advisor Do — And Why You Still Need a Chief Transaction Officer®to Sell Your Business
If you can believe it, I can see the decade mark on the horizon for Doescher Group. It’s really an incredible milestone to think about where this whole thing started, and now to see where we are.
Having interacted with hundreds of business owners over the years, I want to take a step back and articulate the value proposition that Doescher Group brings alongside an M&A Advisor.
The question that arises is simple:
“Why would I hire you if I still need to hire an M&A Advisor?”
We are genuinely unique. We serve our existing clients as Chief Transaction Officer®. If this was a common role, we wouldn’t have been able to register it as a trademark! But it is uncommon, and thus we did what we suggest our clients do, which is to develop your own intellectual property.
Our team comes in and gets your business ready well before the M&A Advisor comes on the scene. We know what your M&A Advisor will need to run a successful process and we dig into the business with you and prepare the financials and documentation for you. We understand the M&A Advisor’s jargon, their goals, and what they need to get the job done, and we are your advisor and advocate every step along the way.
What is an M&A Advisor?
So then what does the M&A Advisor do? Let’s start with the question of what an M&A Advisor is.
They are sometimes called a business broker or investment banker. These are professional firms that represent business owners in the process of selling their companies. They are tasked with creating a market for the business that ultimately will result in the best deal for their client company. You may have heard of Goldman Sachs or Morgan Stanley, which are considered members of the “bulge bracket” of investment banks who serve large corporations. For our client base, the M&A Advisor is likely to be from a lower middle market investment bank or a business broker. Most of these firms are smaller, perhaps a few people up to a few dozen.
How is an M&A Advisor Paid?
M&A Advisors earn their fees two ways: first, they receive a retainer (typically a one-time fee, or sometimes a monthly fee) and second, they earn a contingent success fee only payable upon completion of the sale of your business. The retainer is usually meaningful to you as an owner, but small in comparison to the total payout they will receive if they get a deal done.
When we at Doescher Group serve our clients as Chief Transaction Officer®, we also work on a similar fee structure: monthly fee and success bonus.
So Doescher Group works on the sale, and your M&A Advisor runs the sale. Doesn’t this amount to doubling up on fees and duties?
No, it does not.
Why You Need Both
Here’s the reality with most closely-held (another way of saying owner-operator) businesses. For better or worse, you have run things how you want to run them.
You’re likely not a numbers person. Any financial reporting you receive throughout the year is iffy at best, perhaps directional, or potentially completely unreliable. You run your business by feel, by checking the bank account balance, and once a year filing your taxes and seeing what you reported as profit to the IRS.
This worked for you, but it will not work when you go to sell your business.
Did you know: roughly 70-80% of businesses that go to market fail to sell? And out of those that do over 70% profoundly regret the deal they made one year later.
If you approach an M&A Advisor in this condition, not prepared for what is coming your way, you could easily sabotage your own sale. An M&A Advisor will quickly swamp you in technical financial requests that you’ve got no idea how to answer to their liking. This can be frustrating for them, and stressful for you, and the whole thing can sag to a halt.
In an attempt to help a well meaning M&A Advisor you might suggest a Quality of Earnings (QOE) study. But this is only a band-aid. It can give you a snapshot at a moment in time, but it does not address the more fundamental fact that most business owners don’t understand their own business performance to this level of detail and scrutiny, and cannot articulate a narrative about where the business has been and where it is headed.
You’ve probably gotten by for years, maybe decades without a working finance function in your business. No CFO, no Controller (conducting a monthly GAAP close), and certainly no FP&A (Financial Planning & Analysis) function. Congratulations, you’ve saved significant money in aggregate salaries over the period of your business ownership.
Now, it’s time to use some of those savings to save yourself from a failed sale process.
How We Prepare You to Sell
The Chief Transaction Officer® offering from Doescher Group is the temporary, interim resource you need to assure your success. Our team will come in, clean up your financial reporting, understand your story, forecast the future, and prepare you for your M&A Advisor. In our experience, we rarely need to order a QOE because we are able to do this work ourselves. We know what your M&A Advisor will need to run a successful process and we do the work to prepare this documentation. Then we walk through the process with you every step of the way.
Think of it this way: your M&A Advisor is an outside resource tasked with running a sale process. Doescher Group is your temporary internal resource that you’ve never had, managing the M&A Advisor and bringing our bilingual skills–fluent in your business and your M&A Advisor’s language–to the table. We know what your M&A Advisor wants and we get to know your business so well that we can answer most of their questions without bothering you.
This enables you to continue to run your business because the one thing you can control (and the thing most critical to a successful sale process) is business performance.
Additionally, we stand by your side helping you understand every term, pushing your M&A Advisor to do the best work they can possibly do.
Do you know how to manage an M&A Advisor? Of course not, why would you? You don’t know all of this jargon and legalese. So who do you go to if you feel like they’re pushing you in a direction you don’t want to go, and you aren’t sure what to do? Who looks out for you and your priorities? That’s us. Your Chief Transaction Officer®.
Yes, you will pay more in fees, but in our experience, we have returned 17:1 for every dollar invested in Doescher Group fees. It is worth it. Check out these testimonials from real business owners who chose to hire Doescher Group and an M&A Advisor to understand their perspective.
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