Buying or sell a business - especially if you're doing it for the first time - is a complicated process. An acquisition consultant can assist you with your business acquisition or business transfer.
The bigger the deal, the sooner you need professional advice. To avoid costly mistakes, we've listed all the questions surrounding acquisition advice.
Most business owners have the following questions regarding an acquisition consultant:
- What does an acquisition consultant do?
- What types of acquisition consultants are there?
- What do I need an acquisition consultant for?
- What does an acquisition consultant cost?
- What should I look for when choosing an acquisition advisor?
1. What does an acquisition consultant do?
An acquisition consultant is a specialist in the field of business acquisitions. He (or she) guides entrepreneurs in buying or sell a business. The profession of acquisition consultant - also called business broker, intermediary or business acquisition mediator - is not protected. That attracts cowboys, especially in a market that sometimes involves millions of dollars. So be careful when selecting an acquisition advisor: ask about deals he has done recently and simply call the entrepreneurs in question. There are no better references.
There are also two "professional associations" for specialists in acquisition advice: the Professional Organization for Specialists in Business Transfers(BOBB) and the Dutch Corporate Finance Association(DCFA). If your acquisition advisor belongs to one of these associations, you can usually be confident that you are dealing with a qualified acquisition advisor.
2. What types of acquisition consultants are there?
Acquisition consultants come in many variations. Large accounting firms often have a separate department for business acquisitions (these are called "corporate finance") in SMEs. But in addition, there are several hundred acquisition advisors operating, from nationwide networks to one-person firms. This does not mean that one is better than the other, however, because every deal is unique.
When choosing an adviser, don't rely too easily on a "big name. There are plenty of advisers who learned the trade at the big firms and then started their own consulting firm. They are knowledgeable, have done many deals, are committed to their clients (because they are self-employed), often charge significantly lower rates AND are less inclined to charge for every phone call. One thing small agencies don't have: a trusted name. That can help if there are many privateers on the coast and you are just one of many interested parties, or if you want to impress the bank. With a reputable consulting firm, you are just that little bit more likely to be taken seriously by the selling party.
3. What do I need an acquisition consultant for?
Specialized acquisition advisors guide entrepreneurs during a purchase or sale process. They play a central role in the process, can appreciate the asking price, know how to negotiate, understand financial, tax and legal matters, and can involve other advisers from their network in the purchase or sale where necessary. They provide a one-stop shop. Advisers from the other buying or selling party also prefer to do business with a fellow adviser rather than an accountant or an independent contractor. With a colleague, they can "switch faster" because they more or less speak the same language and know what terms are realistic in today's acquisition market.
Advisers on buying a business
Most advisers are mostly on the selling party's side, simply because that's where the money is more easily made. Want to buy a business? Then look for an acquisition advisor who has experience in assisting buyers. A characteristic of a good buying agent is that he is proactive; he is used to making cold calls to businesses that are not actually for sale. Many advisers demand exclusivity: you may not deal with other business brokers. Be alert to this, as it limits your freedom of movement.
Want to buy a business? Then an acquisition advisor can help you with such things as:
- drawing up a buyer profile
- finding/approaching businesses
- evaluating businesses
- determine value of business
- put together the purchase price
- drawing up of confidentiality agreements
- negotiating price, terms and structure
- arranging funding
- draft statement of intent
- negotiate
- set up data room (due diligence)
- drafting contracts
Advisers on sell a business
An acquisition advisor can play a big role in selling your business. After all, it is his daily job to guide buying or selling processes. But even more importantly, an intermediary takes a lot of work off your hands during the sales process. And that is a good thing, so you can stay focused on your business and keep the business results on track. Because sometimes a business sale can take more than a year, a year in which you don't want your revenue and profits to plummet. Moreover, an acquisition advisor directs the process on the basis of a timetable with tight deadlines, so that even knots about difficult decisions are made.
Also, ask an acquisition advisor how he selects potential buyers, how he plans to sell your business and how communication will take place during the process? Remain critical and ask further questions if an adviser skirts around your question. Of course, it is also important to know whether you personally click with your advisor. After all, you will soon be spending a number of months together and it is good if you understand and trust each other.
Do you want to sell a business? Then an acquisition advisor can help you with things like:
- establishing an exit plan
- support business sales readiness
- determine value of business
- put together a sales price
- establishing buyer profiles
- longlist and shortlist buyers
- drafting teaser and information memorandum
- finding/approaching potential buyers
- evaluating buyers
- drawing up of confidentiality agreements
- negotiating price, terms and structure
- draft statement of intent
- negotiate
- set up data room (due diligence)
- drafting contracts
4. What does an acquisition consultant cost?
Up front: acquisition advice is not cheap. And the question is whether you really benefit from "cheap" mediation. Of course, it's a bit of a shock when an adviser says he costs 300 euros an hour. That's a lot of money. But an experienced professional, who does nothing but business transfers, does work efficiently. 'Expensive' takeover advice may end up being cheaper at the end of the day than a less experienced takeover specialist who charges 80 euros an hour, but has to figure out a lot of things due to lack of experience. A clumsy acquisition advisor also creates irritation with the other party, which is not conducive to getting the deal done.
Acquisition advisors use different pricing models. Some work strictly on an hourly basis, others on a fixed fee basis. The latter offers more leverage, but it can also cause the adviser to lose motivation when he starts to significantly exceed his hours (which he keeps track of in his head, of course). Some parties work on a no cure, no pay basis.
Some charge an hourly rate for all their work, ranging from 80 to 300 euros per hour (excluding VAT). Anderen additionally charge a success fee on the transaction value of about 1 to 5%, which may or may not be tiered and may or may not be combined with an hourly rate. A bit tricky is the success fee, though. If an adviser is acting for a seller, both parties benefit from a high sales price and it is realistic for the adviser to get a share of the proceeds. If the adviser is acting for a buyer, that shared interest is not there. The buyer wants the lowest possible purchase price, while the adviser benefits from the highest possible price, because his compensation will be higher.
It is better to charge the adviser for the negotiation result, for example that he receives ten percent of the difference between the asking price and the final purchase price. An additional disadvantage of a success fee is that it can lead to push behavior from the adviser, especially if he has been involved in your buying or selling process for a long time. Above all, don't be rushed and above all keep your own interests in mind.
In addition to the rate agreements mentioned above, many acquisition advisors also work with a retainer fee or upfront fee. This is a retainer that a business owner must pay in advance and which is later settled in the final invoice. The retainer is intended to cover the adviser's initial costs on the one hand, and it is a commitment by the entrepreneur to the purchase or sale assignment on the other.
5. What should I look for when choosing an acquisition advisor?
Brookz s "How Good Is Your Acquisition Advisor?" survey shows that only a quarter of entrepreneurs wholeheartedly recommend their acquisition advisor within their network. Half of the entrepreneurs surveyed are neutral and just under a quarter would even advise their fellow entrepreneurs against using their adviser.
Asked about the most important selection criteria leading to the choice of an acquisition advisor, having a personal click (25%) is mentioned most often. The adviser's experience (19%), specialization (15%), references (14%) and network (13%) are also considered. Interestingly, the adviser's rate (9%) plays only a limited role in the choice of an acquisition adviser.
If the surveyed entrepreneurs need to use an acquisition advisor again, their biggest learning point is that next time they would like to speak to more acquisition advisors before making a final choice.
'A certain adviser is often chosen too quickly on the basis of a personal click,' says editor-in-chief Peter Rikhof of Brookz and responsible for the research. 'Then in practice it turns out to be difficult to simply terminate such a cooperation. A good understanding is certainly important. But I think it is wiser to first talk to 2 to 3 advisers and then make a selection based on experience, network and references. A nice adviser is not necessarily a good adviser. Mostly not I would say.'
