Preparing a business for an eventual sale is usually a long, arduous process made up of many different steps and unseen complications. Selling a business is nothing like selling a house or private property: it involves negotiations over every minute detail of the company’s infrastructure, as well as its day-to-day functioning. The larger your company is, the more complex this process will be. However, regardless of size, if you’re thinking of selling your company, you need to appoint a corporate finance advisor as soon as possible. A business sale is fundamentally a results-driven process, and the results you reap will be largely contingent on who is involved in that process.
A sale: more than just a transaction
The first person you may think of consulting is your company accountant. Now, whilst accountants can offer some sage advice about selling the company (pun intended!) – and even nudge you in the right direction when it comes to finances – their role can ultimately be very limited. The kind of advisor you are looking for is someone that understands the sale as more than just a transaction. This is where corporate finance advisor come in.
A corporate finance adviser acts as counsel on the different types of transactions that involve a degree of change of ownership within a business. Because they will be accompanying you through the entire sale process, the success of a future sale banks heavily on their abilities and experience as advisers. You therefore need to establish what qualities, skills and prestige you need to look for in a corporate finance advisor, and bear these in mind as you begin your search.
What to look for
You might already have an idea of what to look for in a corporate finance adviser. One of the most obvious credentials might include an adviser’s track record in your sector. Taking this at face-value is not enough; you should try to break down that track record into its composite parts. What sort of results have they achieved in the past, and in what way? What returns did their past clients see from their work? Do they have a history of strong successes, or just a few one-offs? Look at testimonials and referrals from past clients. It’s also worth looking into any public history of recent transactions they’ve been involved in. The more you research, the better-informed your decision whether to hire them or not will be. If their track record is consistently successful, then it should tell you what you need to know about their knowledge of the industry and their contacts within it.
It’s worth asking how many projects an adviser is currently involved in. With bigger companies, there’s a chance that they will be working on up to 20 projects at any one time. As well as this, larger advisories may start you off with their more experienced staff, but by the end of the sale’s timeline, there’s a chance they will have handed your sale to some of their less-experienced staff lower down in the company hierarchy. This will obviously damage the ‘grooming’ process, as, ideally, you want the same advisers to work with you from beginning to end. In this case, it might be better to look at smaller corporate advisories who work with less clients at any one time. These will also tend to have smaller but more focused and targeted teams, which will be able to work much closer with you. The downside of this is that smaller companies may not have quite the same level of prestige as larger advisories, which could make things slightly more difficult when it comes to dealing with aspects of the sale that rely heavily on an adviser’s reputation.
If looking at a smaller firm, it’s worth checking to see if they have won any awards, or examining evidence of collaboration with other professionals (such as reputable private equity firms or large law firms). You want an adviser to ideally have quick, direct, and most importantly, confidential access to, and contact with, the different potential interlocutors involved in the sale. This should also reinforce their record of market knowledge, and tell you more about their track record generally.
Another factor of consideration is adviser fees. In this interview, Chris Hale of Travers Smith says:
“If you are looking at a deal with an enterprise value of more than £100m, you would expect the corporate finance adviser to be charging a 1% fee if they are on the sales side, and perhaps ratcheting up to encourage a higher price to a number larger than that, [above £120m] if the target was say £110m they might be getting another 0.5% and then ratchet up even higher than that once you get into the really deal glory territory. Once you are below £100m the percentages become much more variable. The smaller the deal the less relevant the percentage is. It’s the absolute number that you need to be looking at. So if you are dealing with a deal below £10m the percentage fee might be 5% but what you actually want to look at is the £ number and whether that’s what you think is good value for what you are buying from the advisory firm that you are appointing.”
However, Bob McNaughton (in the same interview), reminds us:
“I don’t think I have ever chosen an adviser for their fees. I have chosen them for their capability to do the job. What I would add on fees is [that] I definitely agree they should be incentivised to maximise performance.”
So, while fees are an important consideration when selecting an adviser, they are not the defining factor. At the front of your mind should be their reputation and know-how; what kind of results they are likely to bring to the table; and, most importantly, their capability, knowledge, and experience in your industry. A corporate finance adviser is a vital component in preparing your business for sale, and it’s on the basis of these sorts of criteria that you should consider them before hiring anyone.