The Importance of an M&A Advisor

The Importance of an M&A Advisor

While some debate the issue of whether to hire an M&A advisor or try to complete a transaction alone, it’s been well-proven that a good financial advisor can add value to completing a successful transaction.

M&A advisors play an integral role in orchestrating successful mergers, acquisitions, and divestitures.  The best M&A advisors are generalists as they have broad experience to draw on as they work through the process of completing a successful transaction.  Anyone interviewing an M&A advisor that receives the answer that the financial advisor knows exactly who will buy their company should keep looking.  Often, the best buyer isn’t known to the company, but is carefully cultivated through the process by the M&A advisor.

The M&A advisor’s role is to orchestrate the transaction.  One of our clients used the analogy of a choreographer.  In some ways, the M&A process is a ballet that needs to be carefully scripted if the best possible results are going to be achieved.  One of the most important objectives is keeping the process confidential.  The M&A advisor also plays an integral role in mobilizing information, organizing the auction, negotiating terms, managing the diligence process, and finding solutions to a multitude of issues during the process.

One of the first steps that a good M&A advisor will take is to identify the client’s objectives.  Next, there’s the discovery period where the advisor researches the client’s company in order to create first class documentation.  The M&A advisor will also do research to find every possible prospective buyer on the sell-side or identify possible targets on the buy-side.

On the sell-side, the M&A advisor will create an Offering Memorandum or Confidential Information Memorandum so that prospective buyers can obtain information in a logical order about the company.  More specifically, this document lays out information on the company’s operations and products (or services), industry analysis, financial background, forecasts, etc.

On the buy-side, it’s always good to have a well written document to give to potential sellers that outlines information on the acquiring company and their objectives.  This makes the sellers comfortable and accelerates the process.

Whether it’s on the sell-side or the buy-side, a good financial advisor will know how to draft these documents, which are pivotal in attracting potential buyers or sellers.  While some companies think they can do without a financial advisor, most entrepreneurs are ill-equipped to prepare these essential documents.

The M&A advisor is also very useful in the preliminary negotiations leading to an offer, structuring the transaction and negotiating and mediating throughout the process.  The client can benefit from this advice as the financial advisor can help keep their client level-headed by maintaining realistic goals and expectations as well as providing unbiased advice.  In addition, they can negotiate more effectively because they are removed from the inherent emotional complications, not to mention their expertise in the entire process.

Whether a client is looking to acquire or sell a company, they have the option of hiring a full service bank or a boutique bank as a financial advisor, which both inherently have their pros and cons.  While full service banks have a greater variety and depth of resources than boutique firms, their effectiveness is also hindered by possible conflicts of interest that don’t affect boutique firms as severely.  In a study done by Jie Wei, a financial economist working in the Office of the Controller of Currency in Washington, D.C., and Weihong Song, an assistant professor of finance and the University of Cincinnati, boutique banks on average are found to be less expensive overall and when used for financial advisory on the buy-side, the premium paid for an acquired company is less than using a full service bank.

For smaller middle-market companies, i.e., companies with less than US$250 million in revenues, a boutique firm can offer the client better service, specialized expertise, and better results than a larger full service bank.  Most importantly, M&A advisors, because of their experience and expertise, can do a far better job at navigating the M&A waters than an entrepreneur whose expertise is in their product or services.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava

Founder and President

+617-449-3325

April 26, 2016

Q1 2016 M&A Activity

Global M&A activity in the first quarter of 2016 was lower than both Q1 2015 and Q1 2014.  Typically, the first quarter is slower than the fourth quarter and this year was no exception.  In terms of volume, Q1 2016 was about 21 percent lower than Q4 2015.  By comparison, Q1 2015 was only 7 percent lower than Q4 2014.

As depicted in the graph below, in terms of volume, Q1 2016 was about 18 percent slower than both Q1 2015 and Q1 2014.

In terms of value, Q1 2016 was dramatically lower than Q1 2015 and about 8 percent lower than Q1 2014. 

M&A in the US and cross border transaction activity remain strong; however, not exempt from this slowing.  Sellers should move quickly to complete transactions while buyers should start to prepare to make acquisitions as valuations will surely drop if this trend continues.

M&A - The Teaser

M&A - The Teaser

When selling a business, it is important to know how to appeal to buyers.  A key step, of course, is to make sure that the best parts of the business are displayed.  These items are what we call Unique Selling Points (“USP”).

A good M&A advisor will know how to portray the USPs so that a broad audience will be able to understand and value the business.  This is important as the best way to sell a business is to contact a large number of potential buyers, usually worldwide.  The buyer list should also include a variety of types of businesses, if possible.  There is no way to predict where a buyer will come from, why they will be interested in your company, or why they are looking to buy any company at all.  Because of this, casting a wide net in the search for buyers is the best chance at finding the “right” interested party.  The “right” buyer will always pay more for the company.

In addition to the formal Confidential Information Memorandum that buyers will receive after executing a Non-Disclosure Agreement, the company or its M&A advisor should create a one-page teaser.  The teaser should describe the company in enough detail, without disclosing confidential information, to get potential buyers interested.  In most cases, it will be a “blind” teaser in that the company’s name will not be disclosed.  It should also be written so that potential suitors won’t be able to figure out which company is for sale.

The teaser should include background on the company—the type of company, overview of its products/services, its history, location, etc.  The teaser should then go on to describe the customer base and why the business is a good investment.  The teaser should also have summary financial data, historical, current and projected.  To summarize, the critical part of the teaser is to make bold claims to drive interest.  At the same time, one needs to make sure that those claims can be backed up with facts.

The majority of people who receive the teaser will not end up being interested in purchasing the business.  However, knowledge is power.  It’s just as important to know that other companies are not interested.  It demonstrates to the seller how strong the market is for their company, which is very useful information.  Both the seller and the M&A advisor commence the process with the optimism that there will be many prospective buyers.  But, once buyers are contacted, the seller will have a very good idea of how many interested buyers there really are.  If the demand is modest, it doesn’t’ mean that the company can’t be sold for a good valuation.  But, it does mean that the seller needs to be careful with the buyers that do present themselves.

In conclusion, the key to the teaser is to give potential buyers enough information to pique their curiosity without releasing too many details about the company.  Interested buyers should then execute a Non-Disclosure Agreement and receive the Confidential Information Memorandum on the company.  From there, the M&A advisor should narrow down the interested parties to those that are serious and financially qualified.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.

Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

April 14, 2016

M&A Timing - When To Sell

M&A Timing - When To Sell

When considering the sale of a company, it is useful for the seller to have a target date for when they would like to sell.  However, there can be disadvantages to having too firm a deadline.  With regard to a lower middle market company, i.e., one with less than US$250 million in revenues, a seller should always be ready to take advantage of market conditions or be opportunistic.  Furthermore, sellers should always try to sell on an uptick, i.e., when the company is doing well.

Many sellers wait too long.  Things change:  market conditions, consumer behaviors, competitors creeping in, etc.  Or, the economy changes like it did in 2007 and the US entered the Great Recession.  In these cases, the seller misses the “window” to sell for a high valuation.  To keep it simple, company owners should think of their companies like fruit - it matures, ripens, and should be sold before the value expires.

The best operators understand that it’s important to always to have the company in the best possible shape, with all the paperwork, financials, and other information in order to be able to take advantage of market conditions.  It’s always best to sell before one has to sell.  Many owners wait until they have a medical reason, a family situation or something else that impacts the M&A process and the final value in an extremely negative way.  To summarize, it’s better for the seller to be early than late or possibly not be able to sell at all.  (Over the last 30+ years, we have seen company owners lose most or all of their company’s value by waiting too long.)

Potential sellers should not be hesitant to engage an M&A professional to help them determine the best timing to conclude a successful sale.  And, if the timing is right, the seller should always hire an M&A professional to increase the probabilities of a successful sale. 

With few exceptions, all companies can be sold at any time; however, the best time to sell a company is when it is profitable and growing.  Many sellers believe that their company will continue growing and increasing profits forever, but in most cases, something changes and the company’s perfect track record is shattered.  The risks are high because when this happens, it has a definitive negative impact on the valuation.

It’s not always easy to time it, but the best way to achieve the highest value is to be ready to sell when the company is profitable and growing, when the economy is strong, and when the seller doesn’t have to sell.  Of course, aligning these things may not always be possible.  The next best scenario is if the company is growing and profitable.  Thus, any company owner that has a company that has a positive track record should consider selling, even if the timing is different (even earlier, for example) than their original target date.

When a company’s performance is modest or the economy isn’t doing well, it’s especially important to engage an M&A advisor.  He or she should be able to identify and contact buyers, on a worldwide basis, which will mitigate the company’s modest performance.  Frequently, an international buyer will recognize the value and a successful transaction will be concluded.

As a result of doing M&A for more than 30 years, I have a clear bias for sellers to sell earlier rather than later.  We’ve seen more sellers that have sold “early” make more money than those who held on too long.  The risk of not selling at a high valuation grows over time because markets change, products change, consumer interests change, etc.  The smartest sellers are those that get asked by buyers if they are selling too early.  The alternative, selling too late, puts the seller at considerable risk to sell at a reduced value or miss the opportunity to sell.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.  Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

April 7, 2016

Importance of an M&A Team

Importance of an M&A Team

One venture that entrepreneurs should avoid is the idea that they are qualified to sell their own business.  Many times, a successful entrepreneur will figure that if they were successful in building a business they can be successful in selling it.  In theory, selling seems like a pretty simple task:  all one needs is a buyer.  But, there are many tricks and traps in the process.  To insure a successful exit with a high valuation and the best terms, it’s necessary to assemble a team, including an M&A advisor.

Too many sellers try to go it alone or with limited help, only to encounter uncontrollable costs related to the process, extensive delays, and unpredictable results.  For most entrepreneurs the company that they’ve spent five to forty years building represents a majority of their net worth.  It’s difficult to explain why an entrepreneur that has invested so much time and effort into building their company would take a chance on the one opportunity to maximize the value of a sale.

The amount of help that an entrepreneur will need depends on several factors, for example

Does the entrepreneur have a buyer or multiple potential buyers in place?

Is the entrepreneur too busy managing the company’s daily operations to participate actively in negotiations?

Is the entrepreneur effective at marketing the company to outsiders and does he or she have the time and ability to negotiate complex contracts?

Is the entrepreneur capable of valuing the business accurately or, at least, capable of understanding the true value of the company?

How much M&A experience does the Company’s attorney and CPA have?

There are four types of professionals that every seller should strongly consider retaining to form a winning M&A team:  An accountant if the entrepreneur’s current CPA has limited to no experience with M&A transactions; a separate tax advisor for the M&A transaction, especially if there are complex or unique tax issues; an attorney with significant M&A experience to prepare and negotiate essential documents, e.g., Non-Disclosure Agreements, Purchase & Sale Agreements, Escrow agreements, etc.; an M&A advisor, especially if the entrepreneur does not have prospective buyers.  It should be noted that M&A transactions are very labor intensive and in most cases, entrepreneurs don’t have the time or expertise to handle a company sale.  Therefore, a professional M&A advisor is always recommended. 

It might seem that hiring multiple professionals would cost the entrepreneur more in the long run, but hiring the right team may ultimately reduce the fees one pays overall.  More importantly, the right professionals will make sure that the entrepreneur receives the best possible valuation and terms.  At the end of the day, that’s the objective of an entrepreneur’s exit.

Versailles Group is a 29-year-old Boston-based investment bank that specializes in international mergers, acquisitions, and divestitures.  Versailles Group’s skill, flexibility, and experience have enabled it to successfully close M&A transactions for companies with revenues between US$2 million and US$250 million.  Versailles Group has closed transactions in all economic environments, literally around the world.  Versailles Group provides clients with both buy-side and sell-side M&A services, and has been completing cross-border transactions since its founding in 1987.  More information on Versailles Group, Ltd. can be found at www.versaillesgroup.com.

For more information, please contact

Donald Grava
Founder and President
617-449-3325

April 1, 2016