M&A advisors are asked a lot of questions from agency owners in varying stages and processes of a transaction. While some questions may be very specific to a given situation, others come up time and again.
In this blog, you’ll find the most common questions and how an M&A advisory firm might answer them.
Have questions about mergers and acquisitions? Contact us for the M&A answers you need!
1. What do I need to know about the sell-side process?
The sell-side process a seller chooses will depend on the specific goals that they and their M&A advisor are trying to achieve. Some sellers want to realize maximum value for the business through a competitive bidding process and discussions with multiple parties. Other sellers, on the other hand, may be determined to keep the discussions as limited and confidential as possible. Accordingly, there are different types of processes (traditional auction, limited auction, and exclusive negotiation) based on what a seller’s goals are for a transaction.
- Traditional sale – In a conventional sell-side M&A process, the sell-side advisory team assists the seller in reaching out to the broadest group of potential buyers – the “full universe.” The M&A advisory firm accepts bids from a wide range of bidders, and the seller can consider any of them. It is a highly structured process and can take up to 12 months to run the process from start to finish.
- Limited auction – This type of auction starts with a much smaller, select group of bidders, although many other aspects of this sell-side process are like traditional sales. Potential buyers can make their bids within a specific period, and the seller considers all of them. The structure and timeline are somewhat more flexible.
- Exclusive negotiations – When a seller negotiates with just one buyer, the process is usually highly customized and typically takes less time to close a transaction than the other sell-side processes. The process is often structured around the buyer’s unique circumstances and needs. This is usually ideal for a seller that is concerned about confidentiality of the transaction process.
2. How does a buy-side M&A process work?
M&A advisors will discuss the buyer’s acquisition criteria and objectives, as well as perform market research and narrow down the field of possible sellers that align with the buyer’s strategic goals.
Once the buyer and their M&A advisor have decided on the agencies to reach out to, the M&A advisor will perform outreach to see which potential sellers are interested in a conversation. Once the buyer has picked a final seller out of the ones that have expressed interest in being acquired, both parties can move on to executing the transaction. Throughout the LOI, purchase agreement, and employment agreement negotiations, the M&A advisor will assist the buyer in completing the transaction and provide valuable advice and expertise through the entire process.
3. What is an earnout structure?
An earnout structure is a provision that may be written into a deal structure. Its purpose is to provide a portion of the purchase price consideration at the closing of the transaction as well as additional consideration after a defined time period, called the earnout period. The following consideration is based on the seller meeting specific financial targets or milestones either throughout the earnout period or at the end of the earnout period.
Earnouts can be structured in several ways. They can be either revenue-based or profit-driven, which can be based on EBITDA, EBIT, and others. Earnout periods vary depending on the industry and the buyer’s and seller’s unique needs. In the advertising and marketing industry, an earnout period can range between three to five years. On the other hand, some buyers might prefer longer earnouts, and others may not require an earnout period at all.
4. When is the right time to sell my business?
The best time to sell your business depends on several factors. In general, it’s better to sell when your business is performing well and revenue is in a growth phase. You should consider the market conditions and the overall economic climate, whether it’s a seller’s market or a buyer’s market. It might also be wise to consider macro-economic factors such as industry trends, interest rates and tax policy changes.
In addition, a buyer usually has their own ideal timeline and factors to consider, which may not align with yours. Ultimately, it is best to sell your business before you get to a point where you “need to sell”, as this often can result in a less competitive environment, and reduced terms and valuation.
5. How long does a transaction take?
Every transaction is unique and follows its own timeline. However, transactions usually fall within a certain range depending on the type of transaction. Most often, traditional processes can take up to 12 months. For a limited sale, the time frame might be between six and twelve months. An exclusive negotiation typically skips some of the steps of a traditional or limited auction so that it can be completed sooner, which means it can range anywhere from a few months to six months.
It’s also best to consider the market and economic conditions. For example, before the pandemic, deal processes moved faster than afterward. In a highly active M&A market, buyers are often considering or executing multiple transactions, which can result in longer closing times.
6. Why should I consider hiring an M&A advisor for a transaction?
An M&A advisor can assist you during every phase of a transaction. You benefit from their expertise in researching and sourcing buyers and sellers. Your merger and acquisition consultant can help you prepare your agency for a sale-side transaction or prepare your agency for a buy-side transaction.
An M&A advisor with industry-specific expertise will determine what a comparatively sized agency with similar capabilities would be valued at, and what types for multiples and structure would be considered “market”. This knowledge will help you whether you are a buyer or seller. Additionally, M&A advisors keep the deal process flowing between both parties and use their negotiation skills to protect your interests and get you the best possible deal.
7. How do I pick the right M&A advisor?
Choosing the right M&A advisor requires you to think of what you would look for in any advisor and your own personal preferences. For example, you would probably feel more comfortable with an advisor you can trust to guide you, answer all of your questions and use his/her experience to help you throughout the process. It’s also easier to feel at ease and work together with an advisor if you have good chemistry with them. The M&A advisor should also be transparent with you on all matters regarding you and the transaction.
8. How can I best prepare my agency for a sale?
If you have a relatively small agency, you may need financial and organizational guidance from an advisor. An M&A advisory firm can help prepare you for a sale process by assessing your firm and working with both owners and their teams in several ways. In addition to getting an advisory team in place, you may also want to:
- Establish processes / have systems in place
- Prepare your agency for future growth
- Improve your profit margins
- Establish a senior management team (if applicable)
- Understand the value of your business from a buyer’s perspective
- Continue increasing your business’s performance
9. What Can Affect the Value of My Agency?
To give you a good read on your agency’s worth, an advisor needs to look at its size, all of its financials, services, capabilities, and growth. Some of the common factors that may affect the valuation of your agency consist of revenue growth, scalability, profitability and cash flow, revenue concentration, competitive positioning, and management. Look for Clare Advisors’ next blog for the answer to the question of “What factors affect the value of my agency?”
Your M&A Advisor
It may not always be easy to find the right answers to questions regarding merger and acquisition processes. This is especially true if it’s your first time buying or selling a business. However, talking to a knowledgeable M&A advisor is an excellent first step to getting the answers you need.
Clare Advisors, a boutique M&A advisory firm focused on digital advertising, marketing, and media companies, can offer valuable help for owners considering buy-side or sell-side acquisitions. The firm has locations in Washington, D.C. and Anchorage, Alaska, and offers its M&A advisory services to the entire United States.
Interested in buying or selling a business? Contact us at Clare Advisors to learn more!