Recently we had a conversation with the CEO of a company that we’d previously had discussions with about hiring Tequity to assist in selling his firm. We didn’t get the engagement; instead, he and his board decided they would go with the brand recognition that a large accounting firm would bring to their project. While we were disappointed, we had assumed the company was eventually sold and didn’t think a lot more about it until getting a call from the CEO asking for our help. After a year and a half, they were working with their second advisory firm and were extremely frustrated, albeit a lot wiser about the whole process.
What he relayed during his conversation is something that we know to be true, but is difficult to really appreciate unless you find yourself in the same position. He’d thought he’d done everything right, gone the safe and proven route, and yet 20 months later he was in a worse position than when he’d started.
He was calling because he recalled some advice we’d given him which only now at the end of a long period of wasted effort had hit home. Use an advisor who specializes in your industry.
Why is this?
Simple. If you are the manufacturer of widgets, it wouldn’t make sense to choose an advisor who has no experience helping widget manufacturers sell their companies. You would need to spend a disproportionate amount of time up front to educate them about your company, its hidden value, your industry, and the history of M&A activity within it. If they have a database of contacts it may contain companies who are in construction, retail, or perhaps even manufacturing, but it’s unlikely that many of them would be related to the widget industry. Without an abundance of companies who would be considered potential buyers, it is unlikely they would be able to generate the interest needed to create a competitive bidding atmosphere.
Using a company that specializes in your industry is more efficient, more effective, and generates results: closed deals at higher values. Little education is needed. They understand your market, know the key companies and their strategies, and they can open doors quickly and bring multiple buyers to your firm in a reasonable timeline. Having multiple buyers is very important. It is a proven technique to drive up both the value and quality of offers.
A specialist’s focus keeps them appraised of industry trends and they typically will have an understanding of the backstories behind the companies in it. They identify strategic fits between you and potential buyers, and how to present you slightly differently depending on the strategy of the company you’re talking with. Not all buyers of your firm will be interested in the same thing and an advisor who understands your industry will know this. (Different strategies by buyers may see them focus their interest in your management team, your customers, your employees, your technology, your geographic reach, your sales channels or some other attributes).
They will understand the complexities and subtle nuances of companies like yours, and will know what a realistic valuation is likely to be. They can talk tough based on real-deal similar transactions that have taken place in the industry, perhaps because they were directly sitting at the negotiating table.
But back to our CEO…
He relayed to us that the large accounting firm he originally opted for had assigned a junior advisor to work on his project (his pre-engagement meetings had all been with senior people at the company). His initial fees had gone towards the preparation of a nice “book” of information about the company. However, once the book was ready, the junior advisor had simply taken the list of potential prospects that the CEO had put together and proceeded to contact them. The firm did little to no research on companies that might have a strategic interest in the client. Their vast network of partners working in tens of thousands of companies which was thought to be an advantage, was never tapped. Additionally, he found accountants to be not particularly good at sales and marketing. Months passed and the firm brought forward no valid offers from prospective buyers. After a few more months it became obvious that the project was going nowhere and he tried to terminate the engagement; unfortunately his agreement kept him bound to the firm for some considerable months.
His investors were getting anxious by now and as soon as he was able to terminate his initial agreement, he was pressured to use a small M&A advisory firm the investors had experience with on a transaction in an unrelated industry. They repackaged the company, approached many of the same firms and once again, our CEO found his project going nowhere. He did get a couple of offers, but they were from “bottom-feeders” who figured if the company was still for sale perhaps they were desperate.
When he contacted us he was really feeling defeated. “I listened to many of the things you said but the one thing that hits home now is that I should have weighted my decision based on the expertise of the advisor working with companies similar to mine.” Now he was in a position where he couldn’t afford to keep diverting his focus from his business; a decrease in sales would surely affect his valuation.
After some frank conversations we advised the CEO to take his firm off the market, which he’s done. We gave him some concrete suggestions on what to work on to improve valuation and the likelihood of success “the next time”. It is their board’s hope that they will return to explore selling the company in about a year’s time, with an improved story.
Choosing the wrong advisor can have a huge impact on the ultimate success, or failure, of the sale of your company (or acquisition).
There are 9 mistakes we’ve identified that companies frequently make during a sale and choosing the wrong advisor is probably the one that can have the biggest (negative or positive) impact.
Click the following link to read how you can avoid the other eight Common Mistakes Companies Make When Sellingtheir Business
If you are considering the possibility of selling your company with a view to exit, or to join a larger firm with the resouces you need to grow, call us at 416.483.9400 or reach out by email to info@tequityadvisors.com for an honest and confidential conversation and appraisal of your options.
