The role of financial advisors in a structured sales process

When a client is in the process of selling or acquiring a business, he or she most often chooses a financial advisor to help, guide and advise them through the process. Typically, the client seeks an advisor who works in the field of mergers and acquisitions (M&A). These are financial advisors who help the client develop a strategy to execute the desired transaction based on the stated objectives of the company and the owners.

What does  a financial advisor bring to the sale or acquisition process?

The role of financial advisors in the purchase or sale of a business is very important as they have the insight into market developments that is necessary to structure the transaction appropriately. At the same time, they have knowledge and experience that can gain or save the client a significant amount of money. Indeed, the sale or acquisition of a business often represents a watershed moment for owners, especially family-owned businesses, who are in this role for the first time and do not have this type of experience. On the other hand, the sale or acquisition process is complex, operationally exhausting and time-consuming.

A financial advisor adds value on both the sell and the buy side.

The sell-side

The financial advisor is committed to selling the business at the most favourable terms for the client – usually the highest price. At the same time, it seeks to meet the other needs of the sellers and the key stakeholders, which, in addition to the owners, include the company itself, its employees, its business partners and the environment in which it operates.

A company faces many obstacles before it can be sold. These include a lack of knowledge of potential investors and their view of the value of the company. In addition, a lack of discretion can jeopardise the success of the transaction and anchor the price of the bids received. Inexperience can delay sales processes, drain key personnel in the company and have a negative impact on the business. These are just some of the obstacles that a financial advisor helps to overcome.

The financial advisor must propose an appropriate process to ensure the desired results. A structured sale process in the form of a limited auction and a strict project timeline that allows investors just enough time, but not too much, are just some of the approaches that a financial advisor takes in the process of selling a business.

The buy-side

Of course, the buy-side also brings many challenges. The main objective of the individual buying a company is to become the preferred partner chosen to acquire the company and at the same time to buy the company at the lowest price that is still acceptable.

The key obstacles to the acquisition process certainly include competition from other investors and different perceptions of the value of the target. Also, the timeframe for carrying out due diligence is often (too) short and requires a significant commitment of external resources.

Therefore, if you wish to buy, it is a good idea to contact the target before they start to actively sell the company through a structured sales process. If a sale process is already underway, the key is to become the preferred acquirer. A trusted financial advisor with knowledge, experience and understanding of the dynamics of sellers and investors in the region can help.

Who acts as a financial advisor in company sales and acquisitions?

A variety of business entities may find themselves in the role of financial advisor in the M&A process. The most common financial advisors are independent consultancy firms, banks and accounting firms. Each of these has its own characteristics, which the client should consider carefully before engaging and hire the one that best suits them.

Strong demand for boutique, niche advisory firms

Recently, more and more companies are turning to “boutique” M&A advisors, known for their specialisation, for financial advice. Since the turn of the millennium, and also since the 2008 financial crisis, we have seen an increasing trend towards hiring independent financial advisors to handle business sales and acquisitions.

In the US, as many as a quarter of acquisitions between 1995 and 2006 involved independent advisors. These advisors tend to have a geographic or industry specialisation, are independent, have fewer conflicts of interest from corporate relationships and are generally smaller than banks or audit firms and consequently more flexible.