A good M&A advisor guides you through the process of buying or sell a business: they assess the price, negotiate on your behalf, and manage the entire process. When choosing an adviser, pay particular attention to experience, specialization, references, and network—research by Brookz shows that the fee (300 euros per hour is not uncommon) actually plays a limited role. Also check whether the adviser is a member of a professional association such as BOBB or DCFA.
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 M&A advisors 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 M&A advisor is a specialist in the field of business acquisitions. He (or she) guides entrepreneurs through the process of buying or sell a business. The profession of M&A advisor—also known as a business broker, intermediary, or business acquisition mediator—is not regulated. This attracts unscrupulous operators, especially in a market where millions are sometimes at stake. So be careful when selecting an acquisition advisor: ask about deals they’ve recently closed and simply call the entrepreneurs involved. There are no better references than that.
In addition, there are two “professional associations” for specialists in the field of acquisition advisory: the Professional Organization for Specialists in Business Transfers (BOBB) and the Dutch Corporate Finance Association (DCFA). If your acquisition advisor is a member of one of these associations, you can generally be confident that you’re dealing with a qualified acquisition advisor.
2. What types of M&A advisors are there?
M&A advisors come in many forms. Large accounting firms often have a separate department dedicated to business acquisitions (known as “corporate finance”) for small and medium-sized businesses. But in addition, there are several hundred M&A advisors active in the market, ranging from nationwide networks to one-person firms. That doesn’t mean, however, that one is better than the other, because every deal is unique.
When choosing an adviser, don’t be too quick to go with a “big name.” There are numerous advisers who learned the trade at the large firms and then started their own consulting firms. They’re knowledgeable, have closed many deals, are deeply committed to their clients (since they’re independent entrepreneurs), often charge significantly lower fees, and are less likely to bill you for every phone call. There’s one thing small firms lack: a name that inspires confidence. That can be helpful if there are many competitors vying for the same deal and you’re just one of many interested parties, or if you want to impress the bank. With a reputable consulting firm, the selling party is just a bit more likely to take you seriously.
3. What do I need an acquisition consultant for?
Specialized M&A advisers guide business owners through the buying or selling process. They play a central role in the process, can assess the asking price based on the company’s value, know how to negotiate, have expertise in financial, tax, and legal matters, and can involve other advisers from their network in the transaction when necessary. They serve as a one-stop shop. Advisers representing the other buying or selling party also prefer to do business with a fellow adviser rather than with an accountant or an independently operating entrepreneur. With a fellow advisor, they can “move more quickly” because they speak more or less the same language and know which 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?
First things first: M&A advisory services aren’t cheap. And the question is whether you’ll really benefit from “cheap” brokerage services. Of course, it’s a bit of a shock when an adviser says they charge 300 euros per hour. That’s a lot of money. But an experienced professional who does nothing but business transfers does work efficiently. “Expensive” M&A advisory services may actually end up being cheaper in the long run than a less experienced M&A specialist who charges 80 euros per hour but has to figure out many details due to a lack of experience. An inept acquisition advisor also causes frustration on the other side, which doesn’t help in closing the deal.
M&A advisors use various fee structures. Some work strictly on an hourly basis, while others charge a fixed fee. The latter offers more predictability, but can also lead to the adviser losing motivation if he starts significantly exceeding his hours (which he naturally keeps track of in his head). Some firms operate 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 also charge a success fee based on the transaction value of approximately 1 to 5 percent, which may or may not be tiered and may or may not be combined with an hourly rate. The success fee is a bit tricky, though. If an adviser represents a seller, both parties benefit from a high sale price, and it makes sense for the adviser to receive a portion of the proceeds. If the adviser represents a buyer, however, that shared interest does not exist. The buyer wants the lowest possible purchase price, while the adviser actually benefits from the highest possible price, as this results in a higher fee.
It is better to compensate the adviser based on the outcome of the negotiations—for example, by having them receive 10 percent of the difference between the asking price and the final purchase price. An additional drawback of a success fee is that it can lead to the adviser pushing too hard, especially if they have been working on your purchase or sale process for a long time. Above all, don’t let yourself be rushed, and keep your own interests in mind.
In addition to the fee arrangements mentioned above, many M&A advisors also work with a retainer fee or upfront fee. This is an advance payment that a business owner must make in advance and that is later offset against the final invoice. On the one hand, the retainer is intended to cover the advisers’ initial costs; on the other hand, it serves as a commitment by the business owner to the purchase or sale engagement.
5. What should I look for when choosing an acquisition advisor?
According to Brookz study“How Good Is Your M&A Advisor?”, only a quarter of business owners would wholeheartedly recommend their M&A advisor to their network. Half of the entrepreneurs surveyed are neutral, and slightly less than a quarter would even advise their fellow entrepreneurs against hiring their advisers.
When asked about the most important selection criteria for choosing an M&A advisor, having a personal connection (25%) was cited most frequently. Other factors considered include the adviser’s experience (19%), their area of specialization (15%), their references (14%), and their network (13%). It is striking that the adviser’s fee (9%) plays only a limited role in the selection of an M&A adviser.
If the entrepreneurs surveyed were to engage an M&A advisor again, their main lesson learned is that next time they want to speak with more M&A advisors before making a final decision.
“People often choose a particular adviser too quickly based on a personal connection,” says Peter Rikhof, editor-in-chief of Brookz, who is responsible for the study. “Then, in practice, it turns out to be difficult to simply end such a partnership. A good rapport is certainly important. But I think it’s wiser to first speak with two or three advisers and then make a selection based on experience, network, and references. A nice adviser isn’t necessarily a good adviser. Most of the time, I’d say, they aren’t.”
Frequently Asked Questions
What exactly does an M&A advisor do?
They guide entrepreneurs through the process of buying or sell a business: they assess the price, negotiate, arrange financing, and coordinate the entire process, often in collaboration with other advisers in their network.
What does an acquisition consultant cost?
Hourly rates typically range from 80 to 300 euros (excluding VAT). Some also charge a success fee of 1 to 5% of the transaction value, either in addition to or in combination with an hourly rate.
What should I look for when choosing an acquisition advisor?
It’s mainly about experience, specialization, references, and network. Research by Brookz shows that the fee actually plays a limited role in the decision-making process.
Is the profession of M&A advisor protected?
No, anyone can call themselves an M&A adviser. So be sure to check their references and see if the adviser is a member of a professional association such as BOBB or DCFA.
Can an M&A advisor also help with buying a business?
Yes, although most advisers have traditionally focused primarily on the seller’s side. If you’re looking to buy, specifically seek out an adviser with experience in assisting buyers.
