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5 Key Advisor Roles Integral to M&A Transactions

Brian J. Sharkey, CPA, CVA, CEPA
Brian J. Sharkey, CPA, CVA, CEPA Director-in-Charge, Transaction Advisory & Business Valuation

Most privately held businesses owners are great entrepreneurs and have a wealth of knowledge and experience when it comes to their industry. However, buying and selling companies is an industry within itself. Whether you’re looking to buy or sell a business, having the appropriate deal team in place is a critical step to maximizing your investment return. In addition, your company’s existing management team may not have the bandwidth or expertise to properly execute on M&A objectives.

Assembling a quality team of professional advisors is an essential step to help you source deals, find buyers, perform due diligence, and most importantly, simply help close the deal. Without an experienced team of advisors to facilitate transactions, deals can fall through, which can lead to lost opportunities, wasted time, and unnecessary expenses.

Depending on whether you’re looking to buy or sell a business, advisor roles may have different relevance – but all should certainly be considered.

Below are five key advisor roles that are integral to M&A transactions.

  1. Investment Banker. Investment bankers are often the primary point of contact between the buyer and seller and should be sought out early in the process when sourcing deals. Investment bankers will typically prepare the company’s Confidential Information Memorandum (CIM), which helps market the business by sharing its business plan, operational highlights, historical financial information, and how it can benefit potential suitors. Investment bankers also help negotiate the final terms of the deal and assist in deal structuring to maximize the benefit to their client.
  2. Valuation Expert. Valuation experts are essential when looking to sell a business, because they will be able to provide a truer depiction of a company’s value. An investment banker will be able to provide an estimated enterprise value based on management’s financial information, but a valuation analyst will get into the details and truly understand the company’s cash flows as well as the risks associated with those cash flows. Their analysis will dig deeper into the company’s financial information and expose any potential weaknesses to value that a buyer may also find. Having a reasonable valuation prior to going to market will better position the owner to plan for transactional taxes and estimate net proceeds for retirement needs.
  3. Accountant. Accountants serve many roles in an M&A transaction, including tax accounting, financial accounting, and due diligence. From the tax side, accountants help with structuring to determine whether the sale or acquisition is set up properly to reduce taxes or gain tax efficiencies. The accountant can also use the valuation estimate described above to estimate transaction taxes. Tax due diligence is another key element of preparing a business for sale or acquiring another business. Making sure that unknown tax liabilities have been properly vetted will avoid any last minute deal hiccups.

    Accountants also routinely perform quality of earnings services or financial due diligence. These services are critical to help a seller prepare its financial information for a potential buyer.  Similarly, accountants often perform due diligence on behalf of the buyer, in order to validate the financial information provided by a seller, which was used determine the offer price. If a buyer is using a bank to finance the transaction, the bank may also require due diligence or a quality of earnings report as a condition of obtaining financing.

  1. Attorney. Attorneys are essentially mandatory in any M&A transaction and there is good reason for it. Not only do attorneys draft all the documents needed to consummate a transaction, but they also make sure that any potential risks associated with a transaction have been properly vetted and mitigated prior to closing. The legal due diligence required in a transaction is voluminous and necessary. Attorneys will make sure state laws are complied with, employment matters are properly addressed, employee severance is appropriately handled, fiduciary and shareholder matters are all taken care of, environmental matters are resolved, intellectual property rights are protected, commercial law is complied with, and the list goes on and on.
  2. Financial Advisor. Financial advisors are often overlooked in an M&A transaction but always play a key role for the individual owners. Many of the key advisors previously mentioned primarily focus on the companies involved, but a financial advisor looks at the transaction from the owner’s point of view. For a selling business owner, a financial advisor will use the valuation estimate to help determine whether the transaction proceeds are sufficient to allow the seller to live comfortably after retirement. If not, the owner may want to hold off on selling the business for a few more years and try to grow it.

On the side of a transaction, a financial advisor can assist a business owner who is looking to purchase a business and evaluate the proper use of their capital. Much like any investment portfolio, having too many assets in any one category is not ideal. A well-trained financial advisor can help owners determine the best use of their capital and evaluate whether third-party capital should be used to finance a transaction.

The advisors described above represent the primary roles needed in most M&A transactions; in many cases, other professionals are also needed. Not every advisor is necessarily required throughout the entire process, but some will play key roles at certain times. Nevertheless, it is important to identify your professional transactional advisors well in advance of any M&A deal, to ensure transactions are well organized and properly executed for success.

If you would like to learn more about M&A transactions and putting together a deal team, please contact us.

Brian Sharkey can be reached at Email or 215.441.4600.

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Brian J. Sharkey, CPA, CVA, CEPA

Brian J. Sharkey, CPA, CVA, CEPA

Director-in-Charge, Transaction Advisory & Business Valuation

Manufacturing & Distribution Specialist, M&A/ Transaction Advisory Services Specialist, ESOPs Specialist, Business Valuation Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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