Why You Need an M&A Advisor
Posted by Carl Doerksen on Tue, Mar 02, 2010 @ 10:53 AM
Recently Pepperdine University Graziadio School of Business and Management released their second annual capital markets survey. To create this study, Pepperdine surveys leading and key players across the capital markets spectrum about a number of differing topics. As usual, they have done another superb job in this latest survey. A number of key pieces of data caught our eye and we will be discussing them in future postings. One of the most revealing to us was found on page 61 of the study and is entitled "Time to Close Deal after LOI Signed". LOI stands for "letter of intent". This key document is what buyers sign to essentially indicate that they are planning to move forward with an acquisition. At this point, most sellers make the assumption that the deal is done and the check will soon be arriving.
Nothing could be further from the truth. Once the LOI is signed, the negotiations really begin, as does due diligence. At this point, if you are doing the deal on your own without professional representation, you better be prepared for a time consuming, painful process. As the following chart from the Pepperdine study indicates, based on their survey of private equity groups, nearly 38% of deals take 3-4 months to close AFTER the LOI is signed:
Source: Pepperdine Private Capital Markets Project - Survey Report II - Winter/Spring 2010, page 61. Pepperdine University Graziadio School of Business and Management.
Also note that nearly 25% of deals take between 4-6 months to close again, AFTER the LOI is signed. Not only is this a long, long time so many things can happen in that time frame to kill a deal. The longer it takes to close a deal, the higher the probability that the buyer will find something of concern that may affect the final valuation, the terms, or the deal itself.
This is further proof that it is vital to have professional advisors to guide you during the M&A process. If you are attempting to sell your company on your own, you need to plan on it taking 12-18 months and require at least 1,000 hours of your time. And that assumes a smooth transaction. You will also need to literally be available around the clock once the LOI is signed to answer a myriad of questions that usually arise as your buyer begins to dig deeper and deeper into your books and operations.
An experienced M&A advisory firm, like The March Group can help you both prepare for the entire process by preparing documents that answer key questions in advance AND, most importantly, guide you through the LOI phase and help you prepare answers to detailed and difficult questions that always arise. Again, you can attempt to sell your company on your own. However, chances are good that the buyers will negotiate terms that are more beneficial to them than to you. And who has 1,000 hours to spend on a process like this?
The March Group has been aiding middle-marketing business owners through the LOI process for over 24 years now. Our experience in dealing with professional buyers will enable you to not only get a better price for your business but also more favorable deal terms. Keep in mind this old axiom in our business: 60% of all deals fall apart at least once! We have the experience to prevent that from happening and if it does happen, to get the deal back on track with either the same buyer or a new one.
If you would like to learn more about how we can help you, please contact us. We would be glad to walk you through our time tested process and show you how we can help you obtain the highest value for your company in the shortest time frame possible. And thanks once again to the Professors and students who have done such fine work as usual in the Pepperdine Capital Markets Survey for 2010.