M&A Advisory

Understanding M&A Advisory

Mergers can add value to your company by creating growth, increasing market power, and affording you certain tax incentives. Considering a merger or acquisition for your business is a big decision. Fortunately, there are advisory firms that can help you understand mergers, acquisitions, and divestitures. These merger and acquisition advisory firms (M&A advisory firms) can give you valuable advice and data to help you make the right decision. 

How do M&A Advisory services work? This guide will give you the answer to this question and much more! 

What Does an M&A Advisory Firm Do?

An M&A advisory firm is a company that can guide your business through the merger and acquisition process. M&A firms primarily offer advice to businesses and corporations, as opposed to individual financial advisors. If you are thinking about buying, selling or merging companies, you are going to want to work with an M&A advisory firm.

In addition to M&A services, these advisory firms also provide advice on managing debt and equity financing for companies. 

How do M&A Advisory Firms compare to Investment Banks?

Investment banks carry out transactions involving large capital. They act as a financial advisor for institutions, often as their broker or middle man.

Investment banks can also facilitate mergers and acquisitions. The finance division of investment banks manages the merger and acquisition work. The work legal and accounting related work is often outsourced to affiliates.

The investment bank typically provides vital market intelligence and prepares a list of prospective targets for the merger or acquisition. If the investment bank is working for the seller, there is usually an auction with several rounds of bidding to determine who the buyer will be.

M&A advisory firms function similarly to investment banks, but there are some important differences:

  • M&A advisors generally manage smaller transactions than investment banks. These transactions usually range between $2 million or less than $1 million in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
  • In larger transactions, regulatory bodies require the servicing professionals to carry certain licenses. However, many M&A advisors are not licensed.

M&A Advisor Regulation and Choosing a Firm

When considering working with an M&A advisory firm as a company planning a sale, it’s important to understand regulatory requirements that may apply to your transaction and what the firm can offer you. 

As mentioned earlier, one of the most notable differences between M&A advisory firms and investment banks is licensure. Investment banks are licensed which allows them to handle not only the middle of the road transactions but large transactions involving big sums of money and assets. Currently, the trade laws allow for most M&A advisory firms to operate without licensure in certain transactions. 

M&A advisors are more consultative as they work with clients in the pre-selling strategy and planning phases of mergers and acquisitions while their exit and liquidity alternatives are still being considered. 

How can you choose a firm?

  • Consider the firm’s track record. 
    • Are they experienced in your industry?
    • Can they assess the market environment appropriately?
  • Consider their fees.
    • Is there a retainer that needs to be paid first?
    • What is the total cost of their services?
  • Consider the firm’s commitment.
    • What will they expect from you?
    • Can they stick to your timeline?
    • Will this firm help you meet your future goals?

Tips for Finding a Personal Financial Advisor

Depending on your goals, you may be better served by a personal financial advisor than an M&A advisory team. Financial advisors work with individuals as opposed to M&A advisors, who mostly offer advice and services to businesses making large transactions that involve buying and selling.

You need a personal financial advisor if you’re a business owner who wants:

  • To plan for retirement
  • To save for college
  • To meet your financial goals

Some personal financial advisors specialize in helping clients with businesses and understand the unique opportunities and challenges involved in financial planning when you are a business owner. How can you find the best financial advisor for your situation?

Interview potential personal financial advisors. Ask:

  • Are their services fee-based or fee-only?
    • Fee-Based Services: These advisors earn money through the fees their clients pay, but they also charge clients flat fees, hourly fees or performance-based fees.
    • Fee-Only Services: These advisors only make money through the fees their clients pay and do not charge any flat fees for their services.
  • What is their preferred method of communicating with clients?
  • How often will they communicate with you?
  • Who are their typical clients?
  • Have they worked with clients similar to you?
  • What is their approach to investing?
    • Investing approaches your financial advisor may use include: 
      • Income investing
      • Growth investing
      • Value investing
      • Socially responsible investing
      • Small-cap investing

What is an M&A Advisory Boutique and Why are They Becoming so Popular?

M&A advisory boutiques are small firms owned by individuals that offer merger and acquisition advisory services. These advisory boutiques can also be known as M&A micro firms, M&A kiosks, or independent advisory banks. They sometimes specialize in services for a certain business or industry sector. Other boutiques are more generic. The owners of M&A advisory boutiques are usually ex-investment bankers with proven experience in large global or regional mergers and acquisitions.

Why are they so popular? Experts believe M&A advisory boutiques are successful because they can help small businesses get big deals with even bigger players. These firms offer amazing dedication levels and more personal touch than larger firms.

M&A Deal Process ~ M&A Lifecycle(MALC)

Tons of work, spanning many months (and sometimes years!) go into the deal. M&A advisory teams start by searching for a suitable target or buyer. This is a complex process. Put simply, the timeline or M&A lifecycle can be divided up into three phases: planning, implementation, and closing.

The thought of acquiring a company sounds exciting, but as the process continues it goes through ups and downs, highs and lows. The first stage is planning:

  • Advisory teams map out current and future directions for the business.
  • Assets are added, reduced, or bought.
  • A SWOT analysis is conducted on the company.
    • SWOT = Strength, Weakness, Opportunity, Threats
  • An acquisition plan is made. 
  • Then, finally, the value of the deal to be made is agreed upon.

The next stage of the MALC is implementation. This is what you can expect during this stage:

  • Historical financial statements are gathered.
  • The deal is structured around considerations like risk management, payment, and tax considerations.
  • The final piece of this stage is due diligence. This is where the team reviews every detail, flags any potential problems and signals the buyer or seller to proceed.

Once all parties are happy with the deal, the final stage, closing, can begin. Here’s what to expect from the closing stage of the process:

  • Necessary approvals are obtained in order for the deal to move forward. Many deals require approval from shareholders and/or government approval.
  • Then integration begins. What happens during integration?

Finally, the deal is complete and the new company can start seeing returns on their investment.

As you can see, managing mergers and acquisitions can be tricky. There are many twists and turns in the process that requires delicate navigation and experience in order to complete the deal. Companies can make deals without an advisory team, but it might not be wise to enter into a big deal without the advice and assistance of established professionals like those members of an M&A advisory team. 

For some time, large companies have used investment banks or M&A advisory teams to manage their mergers and acquisitions carefully. Fortunately, the growing popularity of M&A boutique advisory firms has made it possible for even small businesses to benefit from their expertise and protect their interests with the help of a dedicated team.

M&A Advisory FAQ:

Do M&A Advisors need a license?

Most M&A Advisors are not licensed. Some lower middle market transactions do not require the advisor to be licensed.

What does lead advisory mean?

A special group of leading advisors who provide advice to shareholders and business owners.

What is a boutique advisory firm?

M&A advisory boutiques are small firms owned by individuals that offer merger and acquisition advisory services.

How much do M&A analysts make?

The median salary for entry-level M&A analysts is between $67,200 and $92,000. However, location, employer, and bonuses can affect the salary.

How much are M&A fees?

In addition to the retainer ranging from $50k to $250k, which is sometimes paid as a monthly consulting fee, you will incur a success fee which is usually a percentage of the deal between 8% and 12%.

Why does M&A fail?

Losing focus on the objectives, failure to create a concrete plan with control, and not planning necessary integration measures can lead to failure.

What is an M&A deal?

The process of one company joining with another either caused by acquisition (one company purchasing another) or merger (two companies joining together as a new entity).

What is the M&A target?

A term used to refer to the acquired firm in an acquisition deal.

What does an advisory firm do?

They provide strategic and financial advice to corporate clients, financial sponsors, and governments.

What does a boutique company mean?

A small firm or advisory group that provides specialized services for a particular niche in the larger market.

How do I become a consultant?

Here are the steps to take to become a consultant:

  • Earn a bachelor’s degree
  • Complete an internship with an advisory firm
  • Pursue certifications or licenses to make you more competitive

How long do M&A deals take?

Deals usually take about six months to complete. However, completing all the steps in the M&A process can be complicated and has the potential to take years in some cases.

What is the difference between mergers and acquisitions?

Mergers are deals that involve two companies joining together. Acquisitions are deals where one company purchases another company and absorbs its assets.

Why do companies engage in M&A?

Mergers and acquisitions can stimulate growth, give companies competitive advantages, increase market value, and influence supply chains in a positive way.

4 replies on “Understanding M&A Advisory”

Acquisitions have always been fascinating to me. I first became interested in them when my uncle’s plant was bought out by a Japanese company. I used to think that it wasnt necessary for a company to hire an advisory firm. Then, I learned that a good many of the m&a deals proposed actually fail. That makes m&a advisory teams look like a relaly good idea.

Thank you for explaining fee only services and fee based services as they apply to m&a deals. Can you tell me more about the fees? What can I expect?

There’s a lot of really good information in this article. I’m glad you mentioned that advisory teams can sometimes have some great suggestions for managing you own debt. The m&a advisory boutique that helped us taught me some valuable lessons about managing company debt.

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