The Advisor As Talent Scout

As professional advisors, we know that there are professionals and then there are best-in-class professionals. Our clients suspect as much when they answer a simple question, “If you wanted to reduce your tax bill and could afford any CPA, which would you choose: your CPA or Warren Buffett’s?”

This appreciation for quality holds true when owners decide to sell their companies. This once-in-a-lifetime transaction is the most important financial decision your client will ever make. If that’s not reason enough to find the best advisors for your client, let me share a few more.

  • Buyers have top-shelf accounting, legal, deal and tax advisors. These advisors likely do dozens of deals a year. Your clients need the best possible advisors simply to level the playing field. Relying on their existing advisors to play on their Deal Team may put them at the same disadvantage the local high school basketball team would face playing the NBA All Stars.
  • Using experienced advisors saves time and money. Warren Buffet knows this. So do private equity firms and strategic buyers. That’s why they use them.
  • Recommendations

  • If an owner’s current CPA and attorney have acted as lead advisors on dozens of transactions of similar size and complexity to your client’s, their experience may compare favorably with the buyer’s lead counsel. Experience plays a huge role in the design, negotiation, and orchestration of a deal. Without experience, your client and his or her advisors may be outmanned and outmaneuvered and not even know it. It’s worth educating owners as they embark on the most important financial transaction of their business lives about why they should use the best advisors available. That’s what buyers do. Part of your role can be to assist your clients in interviewing and selecting their Deal Team.
  • Find and recruit your client’s Deal Team well in advance of deciding to go to market. Easy to say, but how do you find great players? Ask existing advisors and M&A advisors in your community. If you know a BEI-trained Exit Planning advisor, ask them to refer players. These advisors have interviewed local M&A advisors and can provide you with names and recommendations.
  • Two M&A experts offer this advice:

    BEI Member and transaction intermediary Mark Smith says, “I suggest to owners that they ask potential advisors if they belong to professional associations directly related to the task/role that the owner is considering them for. This question is a great way to discover if a prospective advisor invests in continuing education or has done the training necessary to earn certification from professional associations (like BEI or the International Business Brokers Association).”

    From BEI Member and investment banker Kevin Short: “I suggest that owners choosing an investment banker: 1) interview that person in his or her office to get a feel for its professional atmosphere and activity level; 2) carefully check references of both the banker and his or her firm with other advisors (especially attorneys) in the community in which the banker is active; 3) ask the banker how many deals he or she has closed in the last three years; and 4) talk to several of the banker’s former clients. Unfortunately, investment bankers are like surgeons in that you can only gauge their expertise after the fact.”

    Hiring your client’s Deal Team in advance of going to market has a number of additional advantages.

  • The transaction intermediary (business broker or investment banker) estimates your client’s company’s likely sale price. Use this to determine the size of any gap between the resources your owner/client needs to achieve financial security and his or her existing financial resources. This information is essential to eliminate other Deal Killers described in preceding articles.
  • You will understand (and incorporate in your Gap Analysis) the fees deal professionals charge. This information also helps to determine the client’s net proceeds upon a sale.
  • The Deal Team can provide at least an educated guess regarding the amount and form of the purchase price that will likely not be paid at closing, i.e. a promissory note carried by the owner or an earn-out.
  • From experience, the Deal Team can point out areas within your client’s company that are likely to concern potential buyers , giving you and existing advisors time to correct deficiencies.
  • You do not need to be part of your client’s Deal Team to provide the vital service of ensuring that owners achieve the best-possible result when they sell to an outside party. As we often like to subtly suggest: If you don’t do this for your client, who will?