Adding Value in M&A Transactions: Part 1

adding value in M&A transactions

Thinking about selling your business? Selling your business is not a decision to be made lightly, and it is not something you want to do without professionals advising you through the process. You need an experienced investment banking firm that can assist in adding value during transactions. 

Buyers are looking for great companies with strong market growth opportunities, but there are several more factors that potential buyers will be considering. If you are not considering these items before you sell, you are already at a disadvantage. Below are some items your investment banker can help you consider before selling your business:  

3 Ways an Investment Banking Firm Assists in Adding Value in M&A Transactions

  1. Start Planning Early

One of the most important steps a business owner can take is succession planning. Planning ahead can help smooth any unexpected transitions due to illness, death, or a sudden change of life goals.

An investment banker can assist with pre-sale planning, which has many layers. Planning should involve making sure the company has the right people and management team in place to keep the business running successfully if ownership decides to exit the business. An investment banker can review current management and help detail whether potential buyers would want additional management for current operations or future growth. 

Planning also involves reviewing and upgrading business processes and operations. An investment banker can advise on whether upgrading equipment or processes will maximize value during an M&A transaction and when those steps should be taken before an exit or transition of the business.

Proper planning also entails gathering documentation that will be requested from buyers in a due diligence process. An investment banking firm can advise on which documentation is generally requested including corporate, benefits, insurance, environmental, and other documentation.

Making sure a company’s financials are properly reported will also demonstrate transparency and bode well with potential acquirers. If the company’s financials are not currently reviewed or audited, it would be beneficial to begin working with accountants to have annual financial reviews or audits, so that there is less uncertainty when buyers evaluate the financials in a sale process. It is also never too soon to start working with an investment banker to have a valuation performed and to discuss putting strategies in place to help get the maximum value when an owner decides to sell their company. A valuation will also detail current industry and market trends in order to give a realistic idea of what the business is truly worth.  

  1. Know What Buyers Want

As part of the planning process, experienced investment bankers like the team at MelCap will help you view your business through the eyes of a potential buyer and provide guidance on how to how to make the business more attractive to buyers. 

It is important to understand what buyers want and that different buyers, whether strategic, private equity, family office, or individual investor, are going to be looking at different aspects of the business from various viewpoints. As mentioned before, in addition to company growth and/or market growth potential, buyers want a strong management team and financial transparency. A company with the ability to demonstrate quality operations and reporting in addition to a track record of growth and profitability is sure to please potential buyers and maximize value during an M&A transaction.

  1. Company Vision

It is no surprise that buyers are attracted to deals in which management has a clear vision and strategic plan for the company. Owners are often so consumed with the day-to-day running of their business that they fail to plan a direction for the future. It is essential that owners not only plan but that they invest in their people and their processes to put the business on the right path that mimics the company’s strategic plan.

By working with an investment banking firm such as MelCap early on in the process, ownership will be better able to address all of these factors, as well as thinking about their own wants and needs with a sale or transition. A few questions that typically arise are: Should we sell completely or remain involved in a lesser capacity? What type of buyer would you prefer and is there a specific type of buyer that would maximize value or future value for the business? Is there a specific purchase price or net value that must be met for the sale to take place?

An experienced advisory team can help a business owner work through all of the issues that may arise during a sale, as well as after the transaction is complete. By planning ahead and planning well, you will be able to minimize risk, maximize value, control the process, and ensure that you are exiting on your terms when the time comes to transition the business.

By Al Melchiorre

Al founded MelCap Partners in 2000, and is responsible for managing all aspects of client engagements from proposal through closing, developing business, reviewing offering memorandums and financial models, negotiating purchase agreements, and interacting with buyers and investors.