Valuation of the company: How can an M&A Advisor impact it?

Entrepreneurs are often reluctant to engage an M&A advisor for an initial valuation of the company that will later be used as a basis for the company's future development. will be sold.

Many business owners have the misconception when considering selling their business that the most difficult part of the process is finding potential investors, when in fact this should be the least of their worries. There are other critical factors, e.g., accompaniment or assessment. 

When the owner of a company actively negotiates with a buyer, the owner believes that the difficult part of the process is over, but he or she is wrong. In reality, the most complex parts of the M&A process are just beginning: mergers and acquisitions are just beginning: The phase of Due Diligence and the drafting of the sales agreement.  

It is in these latter steps that a smart and experienced buyer can systematically reduce the proposed valuation, diminishing the seller's product one seemingly small step at a time.  

The M&A advisor earns his fee by defusing problems and avoiding attempts to renegotiate deals. He is also an important pillar in the creation of the investor list, preparation of materials, meetings, etc. 

But no doubt, the most valuable part of an advisor's job is to ensure that the final transaction is what the seller considers to be a successful outcome.


 

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One mistake some entrepreneurs make is to expect a consultant to magically get a buyer to raise an offer. 

M&A advisors do not have magic words to get buyers to increase their offers. Instead, valuation is the encounter with the competition, the strength of the underlying business, the honesty, needs and desires of the buyer, the motivation of the seller, the tenor of the times and the ability of an advisor to conduct an orderly sales process that "clear the market". generating multiple offers. 

Let's take a look at the different ways in which an M&A advisor can impact a company's valuation:


 

1. Competition from an Orderly Process 

Executing a sale mandate means that the M&A advisor will create competition. Competition creates options, and running in the hands of a capable advisor can be a valuation advantage. Only after an adequate amount of competition has been created can an advisor's negotiating skills be harnessed to maximise the company's valuation. 

The execution of an orderly process is facilitated if the adviser has an negotiating team. A single advisor (not a team of advisors) who has to do everything may be taking on too much responsibility to do an effective and efficient job for the client. Responsibilities of team members include:   

• Preparation of materialsThe following activities can be carried out: gathering the necessary information to create a CIM (sales booklet), disseminating financials, conducting market research, creating a list of buyers, gathering materials for due diligence, maintaining an online data room.   
•  Implementation of the agreementThe following are some of the key elements of the project: disseminating information, obtaining confidentiality agreements, requesting tenders, organising meetings, handling enquiries and follow-up requests.   
• Negotiation: crafting a deal that makes sense for the seller, avoiding attempts to lower the company's valuation and/or change the terms, making sure the deal closes. 
  
    

2. The strength of the underlying   

A company with growing revenues, a strong bottom line, no customer concentrations and a strong management team will be more desirable than a company that loses money. Having multiple options means that the seller has a much better chance of maintaining the valuation on the strong offer.  

3. Honesty   

One sure way to thwart an opportunity to make a deal is to mislead and misrepresent. Ldishonesty will quickly ruin the credibility of the seller.The company's valuation would be tarnished and perhaps make the deal virtually impossible to close. 

4. The needs and wishes of the buyer   

A buyer who wants a particular company more than all others is more likely to pay a higher price. The best way to find such a buyer is to clearing the market.

5. Seller Motivation  

If a seller has few options and is desperate to do a deal, it will lower the valuation. A seller at the helm of a solid financial company with multiple offers in hand will be in a much stronger negotiating position. 

6. Tenor of the times   

 Buyer demand now far outstrips the supply of companies coming to the market and this is driving up valuations.   

The current low interest rates make it difficult for a business owner to replace business income with fixed investment income. This reduces sellers and puts further upward pressure on valuations.  

7. Adviser's skills  

The greatest value advisors place on a client is in the last few days before closing. A strong valuation is not the result of an advisor's "magic words". Instead, it is the confluence of a multitude of events, all orchestrated by the hands of knowledgeable and experienced advisors. 

Magical assessments can be had, but they are not the result of magic, they are the result of skill, foresight, planning, experience and execution.