Working with an M&A Advisor: From Raising Capital to Reducing Deal Fatigue [PODCAST]
April 27, 2021 - If you are a business owner thinking about scaling, raising capital, or selling your company, you have likely wondered whether or not to consult an M&A advisor. We sat down with Jared Rance, Managing Director of Hennepin Partners, a Minneapolis-based boutique investment bank, to shed light on this crucial decision in a business owner's journey.
Listen to this conversation on The Transaction Abstract, an M&A podcast from Redpath:
"M&A transactions are complex," Rance says. "If you don't navigate transactions on a frequent basis, there are potholes that [business owners] can inadvertently step in.” Even though the owner knows their business best, structuring the ideal transaction is a unique art form. The expertise of an advisor can mitigate those risks and avoid those potholes.
What an M&A Advisor Is and Does
Perceptions of what an M&A advisor does (and when to consult one) vary within the market because M&A advisory is more of a group of responsibilities than a specific job title. For that reason, financial professionals, accounting firms, consultancy groups, and more sometimes offer what can be called "M&A advisory services," which encompass their role in facilitating business transactions. According to Rance, an investment banker’s initial role in the transaction process is to help business owners decide what path forward best meets their short- and long-term business goals.
An advisor helps the owner by exploring the available alternatives, explaining the trade-offs to those alternatives, and then helping them settle on a strategy. “We really work as advocates trying to help [business owners] accomplish their objectives,” says Rance. “And those objectives can vary, whether it's selling their company, acquiring another company, or raising capital.” Once the advisor and owner have determined the strategic direction, they work together to execute it.
Business owners sometimes question the inherent value of working with an M&A advisor. Rance stresses that as a partner, an M&A advisor also acts as a trusted guide through what are often complicated transactions between buyers and sellers. “There's a notion that [an advisor] can just be a middleman that doesn't add value, and it’s the furthest thing from that," says Rance.
Building a Relationship, Advocating, and "Heavy Lifting"
As in any relationship, an M&A advisor and a business owner must trust each other personally and professionally. In order to earn their trust, advisors like to get to know business owners as early as possible.
“It's getting to know the owner, getting to know their business, and providing insights to them,” says Rance. “These conversations define how an investment banker moves from being simply a service provider into becoming a trusted partner.”
In addition to navigating the transaction process, an M&A advisor’s expertise can also help to maximize a deal’s potential. One of an advisor's core responsibilities is as an information gatherer: they can collect data on valuation, structure, protections, and buyer/seller fit; determine its relevance and value; and report back to keep their client informed every step of the way.
Rance points out that business owners may not realize the sheer amount of work that occurs after an interested investor or buyer has been identified. During the due diligence phase, an advisor alleviates that burden: “The advisor is going to do a lot of the heavy lifting, allowing the business owner to stay focused on running the business while still having a front-row seat.”
An M&A Advisor is More than Another Set of Hands
Workload is only one way a transaction can stress a business owner and business operations. "In many cases," Rance says, "[the transaction process] can have negative impacts on the performance of the company as the management team becomes distracted or the focus is taken off of running the business.”
Add in deal fatigue, the all-too-common exhaustion that sets in as a transaction stretches on, and the benefits of an M&A advisor become clearer: Advisors do more than gather information and funnel data. They also help establish the timeline, encourage competitive pressures, and advise the business owners and their teams on all aspects of a transaction, while keeping necessary parties updated every step of the way.
Any advisor will tell you that when it comes to finalizing a transaction, there is no "one-size-fits-all" solution. Business owners make many difficult decisions every day, but shepherding the sale of a business from solicitation through close requires an extremely specialized skill set.
From trying to get the best possible deal to advocating for fair valuations and structures, an M&A advisor’s counsel and experience can lend a hand of support through a critical and exciting time. “It's that collaboration,” says Rance. “That’s the ingredient that extracts the best outcome possible."