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October 26, 2022
Selling a business you’ve spent years building up is the biggest deal of your life. Therefore, selecting the right partner to guide you on how to sell your business is not a quick or simple task. Sure, you can – and should – trust the gut instincts that have enabled you to build a successful business so far, but for a life-changing decision like this you also need to conduct thorough due diligence before contracting any service provider.
Before we get into the nitty gritty of what due diligence questions to ask, let’s first look at the six most important factors to consider when head-hunting trusted partners to sell your business.
There is a big difference between business broking / broker businesses / brokerage businesses (call it what you like; it’s all the same) and merger and acquisitions (M&A) specialists.
To broker quite literally means to negotiate a deal or agreement between two parties. It’s as simple and straightforward as that, and that’s what business brokers essentially do: they act as the middlemen between you, the seller, and the buyer.
In contrast, merger and acquisition (M&A) specialists conduct in-depth evaluations, guide the seller on how best to prepare for sale and conduct complex business transactions that require legal, regulatory and taxation expertise.
If you’re a small mom ‘n pop store a broker for business will do just fine. But if you’re a mid-size business wanting to sell for anything over $5 million you’re going to need an expert mergers and acquisitions (M&A) advisory team to guide you through the sales process and secure the best deal.
Many mid-sized businesses may be enamored with big M&A firms that will make an exception and “take you on”, especially if it’s via a personal friend at a firm who is doing you a “personal favor”. The bottom line is that big firms have big targets to meet, and if your deal is not a big money-spinner they are likely to prioritize higher-earning accounts over yours.
This is why size matters when selecting the best M&A firm to sell your business! As a mid-sized business you want advisors who service deals in your size range and understand the ins and outs. Importantly, you want M&A advisors who depend on having clients of your size to make a living and therefore will do their best to provide you with top-notch service.
A good M&A firm will either have in-house or contracted experts to fulfill critical roles in the team to guide and assist you through all stages of your business in sale. These include merger and acquisition lawyers, experts on special purpose acquisition companies, accountants, analysts, marketers and more.
All these advisors are vital to achieving a successful sale, but never forget you’re the one making the major decisions. Even if you haven’t done this before, it’s still your company and you’re still the boss, therefore you are the ultimate decision maker. M&A firms who regularly deal with mid-sized business sales understand and respect this.
Many business owners have the majority of their net worth in their company, so once their deal closes it will represent the largest amount of cash they have ever obtained.
In order to become comfortable with the liquidity you will obtain, it makes sense to do some pre-sale planning with a wealth manager, particularly tax planning prior to accepting a letter of intent from a buyer. On a big picture level, you need to have a game plan for how to allocate your newfound liquidity, which will likely be the majority of your wealth.
As such, it is important that the M&A advisors you choose either have a seasoned wealth advisor in-house or partnering with the team.
Likeability is of course crucial but not the most important factor. If you’re head-over-heels for one M&A firm, but your objective assessment points towards a more competent M&A firm that has proven to deliver better results, all things being equal you should hire the more competent firm. As long as you trust the people and like them enough, results are more important than personalities.
While interviewing M&A advisors take note of how responsive they are. No matter how highly recommended they come, if the M&A advisors are not responsive while you are still evaluating their suitability, it’s unlikely you can count on them to be responsive and proactive once you’ve engaged them and it’s up to them to meet a series of critical deadlines.
As Larry Reinharz, Woodbridge International’s Managing Director, notes: “My mother gave me sage advice 30 years ago when I bought my first house. I needed a plumber and didn’t know anyone in the area. She told me to look up a few plumbers in the Yellow Pages (remember those?) and make some calls. The ones that were responsive, attentive and professional were the right ones for me! As Woody Allen said, ‘90% of life is just showing up’.”
On that note, we’ve put together some due diligence questions that cover the basic information that any good, credible M&A firm should openly provide with no hesitation or delay.
Since much of M&A deal communication is in writing, we recommend you obtain written responses to the below questions. Lawyers, wealth managers and accountants may bristle at responding in writing, but don’t be put off. This exercise in itself is a good litmus test to see how hungry and motivated they are to help you make the most important deal of your life.
The manner and detail in which the M&A firm and their associates respond to the above questions will open up the kimono on how the firm operates and services clients.
There are many moving pieces involved with the sale of your company, so you have every right to ask for the information needed in order to formulate your game plan. So don’t be deterred if you encounter resistance or get sub-par answers from an M&A firm. Consider this a bullet dodged, and stick to your guns until you find a partner who can prove that they will work for you.
For a deeper dive into why choosing the right M&A advisory partner is so crucial, download our free e-book More Buyers, More Bids, Higher Price, Better Fit.