Do not listen to your M&A advisers

This topic contains 9 replies, has 10 voices, and was last updated by  Eric Hubacheck 3 months ago.

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  • #109365

    I read an interesting article on M&A, where one of the key advice was ‘Do not listen to your M&A advisers’ and even if you do so, listen selectively.
    The reason for the same they claim is, In most cases, advisors are brought in to close the deal.

    It is really an interesting perspective and I would request the members in the group to let me know their viewpoints.

    #109444

    Paul Gray, MBA
    Participant

    To say “don’t listen” is a bit extreme but there is a lot being said in that simple statement. Advisors generally are working to get a transaction done and their compensation models are sometimes tied to the success of the transaction so their job is to advise you on what gets the deal done. Additionally, once the deal is done, the reality is that you will own the ensuing result(s) which could be joy or pain. Clients also use the excuse in failed transaction that they were given poor advice, deflecting the responsibility squarely at the feet of the advisors. In both of the foregoing cases, the outcome is not ideal and consequently the article I suppose is purporting that management must take responsibility for the advise they receive and use this advise as raw material in making a final decision. It is proportion that management must be critical of any advise receive ensuring that there is appropriate rigor applied to the assumptions or projected outcomes etc.

    #109596

    Tanaquil Chantrill
    Participant

    I have heard the comparison of M&A advisors to Real Estate Agents, get the deal done fast! I agree with Paul, often the advisors compensation models are tied to success of the transaction and less around the substance of the deal. If you go into the relationship with your advisors with a clear understanding of their financial motivation and willing to listen and learn from their experiences but also add your own level of scrutiny and analyses to their advice then I think M&A advisors can provide a lot of value.

    #109665

    Melanie Edwards
    Participant

    As per Tanaquil’s response, I tend to agree. I have only had exposure to advisors from the seller (my company being the buyer) and their interests were greatly linked to how big a fee they would receive. They are there to provide a service and get paid, not for the future potential of the combined entity.

    This can help both ways though. The seller’s advisors can be used to help close the deal from a Buyer’s perspective as they can convey messages whilst being considered more trustworthy in the eye of the seller.

    #110387

    Paul Reed
    Participant

    As an intermediary, I have met sellers who feel they have the wherewithal to complete a business transaction without the aide of an intermediary or advisor, and while the advisor does have a success fee, this fee creates a mutual interest for both parties; to receive as much compensation from the buyer as possible.

    More importantly many small and mid–market companies do not have the experience, knowledge and resources to quarterback a merger or acquisition, and the cost of learning is high, and can even be to the detriment of the business and the seller.

    Advisors and intermediaries will have experience in deal making while still maintaining a fiduciary responsibility to their client.

    Further advisors know how to spot opportunities in a transaction to maximize long term value, such as with a rollover, which is not necessarily going to be something the seller would be aware to look or ask for in a transaction.

    Sellers should not step over a dollar to save a dime in such a vital transaction, and should absolutely listen to an advisor or intermediary to guide them through this new and uncertain process.

    #110439

    Sonia Shah
    Participant

    I agree with a lot of the above points that perhaps ‘don’t listen’ is a bit extreme – however, I do think it is crucial to assess reasons to not to a deal, just as much as you would the reasons to do it. Advisors are likely brought in to close – as you mentioned in your post – so I would say to take everything with a grain of salt!

    #111842

    Kay Yong
    Participant

    I largely agree with Paul’s view. ‘Don’t listen to your M&A advisers’ can be quite a generalizing statement. Good M&A advisers would not push you to achieve an outcome that is not in your best interest. A success fee arrangement with the adviser is even prohibited in certain jurisdictions. Ultimately, the purpose of an adviser is to put forward his/her expertise (taking into account his/her fiduciary duty to the client), and to the extent that the adviser has expertise which the client may not necessarily possess, there could very well be value added there already.

    #112059

    Jason Kiang
    Participant

    An M&A advisor is by any other name a broker. As with any agency relationship, your interests may or may not fully align. Interpret their advice accordingly …

    #112265


    Participant

    I’ve only participated in one sale. Sellers’ ownership and management may have different wish lists for an investment banker. But both groups will place a premium on the IB’s ability to maximizing selling price. A great IB will know how to analyze the company, position and best present it in the CIP, and articulate its value–or potential value–to suitors. A company is a much more sophisticated product than a trinket at a bazar, a piece of real estate, or an insurance contract, and their job is harder because every product is different and a fresh sales approach has to be crafted for each one. So as salespeople go, they probably need to be among the most talented out there in any profession. Don’t forget they are applying those sales skills to their sell-side clients as well as to the potential suitors. I left the company before the sale was complete. But the CEO was the consummate saleswoman, and she carefully selected the IB with an eye toward getting the best value for the firm and maximizing her chances for staying in the CEO chair afterward. Ultimately, she didn’t get the desired outcome on the second objective. Although I wasn’t there to see what advice she was given in selecting a suitor with whom to complete the deal, it is reasonable to conclude that the IB is going to place more priority on factors that affect their fee formula (i.e., price) than on helping management navigate the mine field of the post-merger landscape. So as far as listening to your advisor, know what you are getting, and caveat emptor.

    #112328

    Eric Hubacheck
    Participant

    M&A advisers exist because there is a demand. I imagine the the person who said “don’t listen to your M&A advisers” had one or multiple bad experiences, which is unavoidable in any profession. There is no quality guarantee, and anyone who hires a M&A adviser knows that what they are paying for is an experienced opinion, but an opinion nonetheless. There could be any number of reasons an adviser could lead to worse execution, including professional misconduct on their part. But, if anybody actually hires an M&A adviser and then does not listen to them, well, that thought pretty much ends all by itself!

    Alternatively, what I have been learning lately is that you should never compensate any adviser to the company in any capacity with equity.

    Curious if anyone has ever come across M&A advisers who have received equity for compensation and how this impacted their judgment (if at all).

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