The world of lower middle-market M&A advisory is not as robust as the middle-market and larger companies.  Common typical reason is more work for less earning.  Bigger the deal size, the larger the commission.   Small deals still take quite a bit of work to get them to the finish line.  There are many definitions of company size definitions so I have done my best to create our version of company sizes.

To properly service an M&A deal there are some necessary consultants and advisors needed on both sides.  M&A Advisor, business attorney, accountants, wealth managers, change management consultants for transitions and more depending on the complexity.

What is M&A Advisory?

M&A (mergers and acquisitions) advisory is a term that describes the work that intermediaries do in the world of buy-side and sell-side advisory.  M&A advisory firms also conduct market research and help firms raise capital for M&A and expansion.

The primary role of an M&A advisor is to provide buy-side and sell-side advice for the completion of a company sale, merger or acquisition.  An advisor should add significant value to a business owner who likely does not have experience in M&A.

• Expertise: An M&A advisor has the expertise needed to navigate a costly and complex process.  From properly valuing your company, understanding key negotiation points, to managing due diligence, every step is critical.

• Network: Selling companies that cannot look like they are for sale, and finding companies to buy that aren’t advertising their sale, takes a network to pull off.

• Market Knowledge: Access to the market, market research reports and data, and deal flow give good insight into company value and where the opportunities are.

Sell-Side Role

• Data gathering & market analysis
• Company Valuation
• Identify buyer target profiles
• marketing material preparation
• Distribution of CIM (Confidential Information Memorandum) to market
• Review purchase offers and letters of intent with seller
• Negotiate on behalf of seller
• Facilitating due diligence
• Facilitating final purchase agreement negotiations
• Moving deal to closing best meeting sellers objectives

Buy-Side Role

• Data gathering & market analysis
• Identify acquisition target profiles
• Identify target list of acquisitions, preliminary discussions
• Draft LOI’s or Purchase Offers
• Negotiate on behalf of buyer
• Facilitating due diligence
• Facilitating final purchase agreement negotiations
• Moving deal to closing best meeting buyers objectives

Most business owners in the lower middle market size and below do not have experience in these functions.  It is wise and worth the investment to hire an experienced M&A advisor for your buy-side or sell-side to hire.

How much does M&A advisory cost?

At the Lower middle market and smaller, they typical fee is based on success (closing) and is a percentage of the transaction value.  I have seen fees range from 5-12% based on competition and size.  As the transactions get larger, the success fee % tends to decrease to the lower end of the range.

Conclusion

Small to medium sized business owners typically do not have the expertise in house to handle such an important transaction.  While investment banks are focused on the larger transactions, good M&A advisors are bringing significant value to the transactions with a competitive network of services that rival investment banks.  

A competent M&A adviser has deal experience and understands the local regional market with a connection to national and global market.  The advisor will be quarterbacking accountants, attorney’s, bankers, asset lenders, buyers, and most importantly, the seller.    

When looking for an M&A advisor, you want an expert that is resourceful and understands your industry, and also a great attentive project manager.  They are key to taking a transaction from start to finish moving through the various complex stages while protecting their clients interests.