4 Things to Look for in an M&A Advisor

We’ve written before about how valuable M&A advisors are to the selling CEO. They provide helpful advice on strategic changes to increase valuation, help write investment teasers, and are proven to add value to deals. But not any advisor will do. Before building a relationship with an advisor, look for these four things.

1. Experience

The single most important thing to look for in an M&A advisor is experience. While it’s obvious that you want an advisor that has closed a lot of deals, you also want an advisor with experience particular to your industry. Much is standard across transactions, but every industry has facets of its deals that are unique. You want a seller who knows how to navigate your specific space. Ask advisors what comparable deals (industry and size-wise) they’ve closed in the last few years. If their answers match your company’s stats, it may be a match.

2. Great Reputation

It’s important to look at a potential advisory’s reputation from a couple different angles. Make sure firms you consider are accredited by the relevant bodies (e.g., the Alliance of Mergers & Acquisitions Advisors, or AM&AA, and Certified Merger & Acquisition Advisors, or CM&AA). Beyond that, request information about previous clients and reach out to them: How was their experience working with the firm? Ask for references on deals that did — and didn’t — close. If an advisor is unwilling to put you in contact with former clients, it may be a red flag.

3. Strong Team

Sometimes an advisory will send in the big guns to pitch their firm to you — and, after you’ve signed, reveal that other managers, associates, and analysts will actually putting in the work on your deal. There’s nothing explicitly wrong with this, but a lot the value of an M&A advisory, beyond pre-sale preparation, comes from the experience and network of its senior bankers.

Beside that, different people bring varied experience, work styles, and personalities to a business relationship. Make sure you’re meeting with the deal team you’ll be working with so you can get an accurate sense of how this relationship will look. Selling a business can get stressful — it’s important you have a rapport and are comfortable with your advisors.

4. Even Fee Structure

Although heavy hitters in the field may skew perception of M&A, the truth is that about 50% of deals fail. This has a couple different effects on a potential sale, but one that isn’t always considered is how it affects the way an advisory structures its fees. A combination of a success fee and a retainer is the most common way M&A firms charge for their services, and it pays to be wary of advisors who skew too far to either side.

Beware of firms with high upfront fees and comparatively paltry success fees — this speaks to low motivation to actually close deals, since the bank gets most of their money either way. On the flip side, be careful with firms that charge based success fees only: they probably don’t close on most of their deals and are just trying to sign on high numbers of clients. Most of a bank’s fees should come from the success fee, but the fee structure shouldn’t be too lopsided. Look for balance.