M&A Business Advisors: Are They Needed?

Erik Mills

3 min read

#M&A Update: Jun 09, 2021

In the world of M&As, a capable M&A advisor is the best way to ensure any high-profile exit transaction gets over the line. As industries become more technology-based and move away from physical data rooms, you may assume the days of the traditional advisors are coming to an end. 

However, modern M&A advisors are adapting to a changing landscape and providing a service that has proved successful in the current marketplace.

What is an M&A business advisor?

M&A business advisors are professionals who handle complicated transactions. Usually, they will take on larger deals than M&A brokers. According to the Alliance of Mergers & Acquisitions Advisors, M&A advisors can represent both buyers and sellers in a transaction.

The history and the role of an M&A advisor

According to Exit Strategies, the term M&A advisor barely existed a few years ago. Sure, professionals were available to help finalize M&A deals, but they didn’t have a name for them.

Nowadays, M&A advisors are becoming synonymous with small and medium-sized deals. However, only a decade ago, most people in the industry were talking about big-money transactions. In fact, it was not unheard of for an M&A advisor to handle a transaction worth $500 million.

As the financial climate changes, most transactions tend to fall under the $30 million range. In fact, the median size of private company exit transactions usually comes to $15 million. M&A activity is now geared towards smaller deals. As such, more companies are looking for experts to design their strategies. Great value is placed on capable M&A advisors who can complete these transactions successfully.

Modern M&A business advisors’ functionality

M&A advisors take on much responsibility in exit transactions. Their range of services typically includes an expected valuation and due diligence. However, they can also perform accounting, legal, and finance tasks.

Modern M&A advisors are hired to make critical decisions. They use predictive analytic technology to anticipate buyer concerns and prepare for business meetings. This means they can address those issues before they have been brought to their attention. Advisors are expected to identify risks and provide streamlined diligence experiences. In the past, advisors lost plenty of deals while waiting for buyers to identify risks.

The work of modern advisors allows buyers to:

• Plan integration from the very beginning of the process
• Ensure post-closing success thanks to efficient handoff.
• Reuse diligence data stored in the virtual data room.

M&A business advisors do have their downfalls. As pointed out by the Eisbach Group, some M&A advisors may not have the required expertise in certain fields to recognize potential issues with integration. As such, their advice may not be as sound as you had hoped. If an M&A business advisor is experienced in many business areas, they are more likely to achieve the best deal for the company.

Due to the sheer number of services M&A business advisors tend to provide (including financial analysis and sales strategy), they work on a different fee structure. Usually, advisors will work for a retainer. This means the seller will pay a non-refundable portion of the fee to the M&A advisor — no matter the outcome of the deal or whether a buyer can even be found.

Can data rooms be used instead of M&A business advisors? 

When it comes to due diligence, it is important to have access to confidential files and figures. Before the age of online technology, companies used to keep their documents in a physical room, usually on the premises. This way, they could access information with relative ease.

Nowadays, businesses keep their documents in an electronic due diligence data room. This is often called a virtual data room. Essentially, this is a cloud storage system. Companies use these data rooms to keep their important documents in one place. Files can be uploaded, stored, and shared to these VDRs. Since the invention of virtual data rooms, M&A deals have become easier for both parties. Information is now readily available for both buyers and sellers.

M&A advisors have been turning to these virtual data rooms to conduct their work. This is because data rooms offer several benefits:

• Clear communication
• Easy access to information
• Control over who sees relevant documents
• High levels of security

Data rooms also give M&A advisors the ability to export all transaction documents. These can then be stored in legal archives for later viewing.

According to some sources, automation is reducing due diligence time by 50%. M&A advisors no longer must spend time tracking NDAs, preparing CIMs, or responding to diligence requests.

Still, technology is playing a huge part in modern M&A transactions. Advisors have had to adapt to the times. Automation is now commonplace, and businesses are looking for tech-savvy advisors more than ever.

Summary

While business practices are ever-changing, most companies should still hire an M&A advisor to interpret available data and help them achieve the best transaction possible. After all, it pays to have an expert handling due diligence.