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Any advice on finding the right advisor firm for a sale in the high $xx million range? We're a team of builders and have no experience in M&A, and little exper

Any advice on finding the right advisor firm for a sale in the high $xx million range? We're a team of builders and have no experience in M&A, and little experience in finance/negotiation. I’m worried that a broker will be incentivized to close a deal at an undervalued price, similar to brokers in real estate.

chrisgd 5y ago
Oftentimes a banker would include an incentive fee for higher valuation - 2% of value up to $50M then 3% on anything above $50M. You can negotiate all these things up front.
endymi0n 5y ago
In all honesty, my concrete advice would be reaching out to other local founders privately and asked what worked for them and what didn't. Note there usually is a lot to these stories that aren't told in public for many reasons. On top, one thing I regret is not having joined a network of founders and entrepreneurs earlier. These days, I would just ask them and get 2-3 spot-on recommendations with warm intros in a day. We hackers and builders usually scoff at these kind of "elite" networks until we realize building and selling a company is fundamentally a people business, where connections and trust are paramount. Reach out to me on LinkedIn for an intro to the organization I'm in (it's global). As for the original advice: +100 from my side. Especially if the whole founder round is not experienced, you really want to have a cold blooded veteran on your side. Someone who commands respect by founders, is hired by you guys and is incentivized by getting home a part of the deal. Not only do these brokers have the know-how, they usually have a vast network of interested parties to bring to the table at any time to get a bidding war started and are experienced in navigating the delicate timing of the funnel that is crucial for a success. The differences in outcome I've personally witnessed with and without brokers are night and day, even though I have my own cultural issues with them.
- jacquesm 5y ago
  > In all honesty, my concrete advice would be reaching out to other local founders privately and asked what worked for them and what didn't. Note there usually is a lot to these stories that aren't told in public for many reasons. This is the best advice. You won't be able to 'interview them' and make a good judgment, the people that have already gone through a process with them know better what they are like. And even then you have to be aware that plenty of these places have 'A' and 'B' teams and that you need to make sure you are comparing apples-to-apples.
cascom 5y ago
Interview several firms that have done deals in your space/vertical, and where this will be a meaningful transaction to the firm/md - and ask them for valuation guidance (e.g. what they think they think they can sell your company for) you’ll generally find they’ll be in a similar range (e.g. 4-5x ARR) that should set expectations for the sale process. Deal structure can be worth ~20%+ of purchase price so don’t be myopic on focusing on price only. Trying to get the last dollar usually leads to broken deals and unhappy people on both sides, but you want to make sure that you’re getting a good market read on value for your business. Make sure you trust the team/have chemistry, you’ll go through quite a bit together. Also make sure you have M&A counsel - don’t let your commercial counsel handle this (you wouldn’t let your internist perform open heart surgery on you…)
- hodgesrm 5y ago
  > Deal structure can be worth ~20%+ of purchase price so don’t be myopic on focusing on price only. This. Asset sale vs. merger is a great example. If you do an asset sale you'll need to wind down the company, pay corporate taxes, pay out everyone, etc. I've done it once and it was just about the most stressful thing I've ever been through. It's also a huge millstone if you are simultaneously working at the acquirer.
throwaway9870 5y ago
Interview them. That is what we did and it worked great. Where are you located? I used ours twice and both times was happy. You can incentivise them to push for higher prices with the terms you offer them. The ones I worked with were highly motivated and skilled at pushing higher.
stpe 5y ago
Pick any of the big four; PwC, EY, Deloitte, KPMG. Typically they'll do a valuation and put a bonus threshold. x% under, x+n% if over.
tmcz26 5y ago
Since these firms charge a % of the deal they have an incentive to get higher valuations. It also looks good on their resume. But you can just look at their portfolio and see the exists they worked on, the valuation, who the acquirer was, etc. You can try and reach out to some founders to check if they liked working with the advisor too.
hodgesrm 5y ago
We sold our company to VMware in 2014 with help from GrowthPoint Partners. Some learnings about the deal. * Find multiple firms and interview them carefully. They have to sync well with your board because you'll need a high level of trust to get the deal done. Check references. * Good advisors have done a lot of deals and have a lot of connections in the vertical you are in. They should be able to list possible acquirers off the cuff and why you are a fit. If they can't do that, move on. * You want somebody who can run the deal process - which is really time intensive - while you run the business. It's really hard to do both. * Good advisors will guide you through every step of the process from developing the pitch deck to acquirers to due diligence at the end. You'll quickly realize how little you know about any of these things if it's your first time through. If they aren't hands-on, again, move on. The fees may seem high if you've never done a deal. They are justified by the potentially huge swing in price if you get somebody good. You can be looking at a 2x difference in price if you get multiple bidders. Comp the advisors on outcome and give them unlimited upside for a great result. It's just like comp'ing sales if you've done that. Just my $0.02.
- troydavis 5y ago
  I echo this strongly: > * Good advisors have done a lot of deals and have a lot of connections in the vertical you are in. They should be able to list possible acquirers off the cuff and why you are a fit. If they can't do that, move on. … as well as someone else's comment that the terms in the engagement letter are negotiable. If a banker claims that their interests are aligned with yours, then turns around and delivers an engagement letter with a huge fixed fee and little or no variable fee based on outcome, either negotiate or move on. We used Cascadia Capital when Papertrail was acquired and I was very satisfied (https://www.cascadiacapital.com/case-study/papertrail/ https://www.cascadiacapital.com/case-study/papertrail/, https://www.cascadiacapital.com/story/cascadia-capital-advises-papertrail-in-acquisition-by-solarwinds/ https://www.cascadiacapital.com/story/cascadia-capital-advis...). Since we were entirely bootstrapped, their fee came directly out of our proceeds, and it was completely worthwhile. (If any founders read this, have a serious opportunity at a $20+ million offer, and want a sounding board, feel free to contact me.)
  - 5y ago

chrisgd 5y ago

Oftentimes a banker would include an incentive fee for higher valuation - 2% of value up to $50M then 3% on anything above $50M. You can negotiate all these things up front.

endymi0n 5y ago

In all honesty, my concrete advice would be reaching out to other local founders privately and asked what worked for them and what didn't. Note there usually is a lot to these stories that aren't told in public for many reasons. On top, one thing I regret is not having joined a network of founders and entrepreneurs earlier. These days, I would just ask them and get 2-3 spot-on recommendations with warm intros in a day. We hackers and builders usually scoff at these kind of "elite" networks until we realize building and selling a company is fundamentally a people business, where connections and trust are paramount. Reach out to me on LinkedIn for an intro to the organization I'm in (it's global). As for the original advice: +100 from my side. Especially if the whole founder round is not experienced, you really want to have a cold blooded veteran on your side. Someone who commands respect by founders, is hired by you guys and is incentivized by getting home a part of the deal. Not only do these brokers have the know-how, they usually have a vast network of interested parties to bring to the table at any time to get a bidding war started and are experienced in navigating the delicate timing of the funnel that is crucial for a success. The differences in outcome I've personally witnessed with and without brokers are night and day, even though I have my own cultural issues with them.

jacquesm 5y ago
> In all honesty, my concrete advice would be reaching out to other local founders privately and asked what worked for them and what didn't. Note there usually is a lot to these stories that aren't told in public for many reasons. This is the best advice. You won't be able to 'interview them' and make a good judgment, the people that have already gone through a process with them know better what they are like. And even then you have to be aware that plenty of these places have 'A' and 'B' teams and that you need to make sure you are comparing apples-to-apples.

cascom 5y ago

Interview several firms that have done deals in your space/vertical, and where this will be a meaningful transaction to the firm/md - and ask them for valuation guidance (e.g. what they think they think they can sell your company for) you’ll generally find they’ll be in a similar range (e.g. 4-5x ARR) that should set expectations for the sale process. Deal structure can be worth ~20%+ of purchase price so don’t be myopic on focusing on price only. Trying to get the last dollar usually leads to broken deals and unhappy people on both sides, but you want to make sure that you’re getting a good market read on value for your business. Make sure you trust the team/have chemistry, you’ll go through quite a bit together. Also make sure you have M&A counsel - don’t let your commercial counsel handle this (you wouldn’t let your internist perform open heart surgery on you…)

hodgesrm 5y ago
> Deal structure can be worth ~20%+ of purchase price so don’t be myopic on focusing on price only. This. Asset sale vs. merger is a great example. If you do an asset sale you'll need to wind down the company, pay corporate taxes, pay out everyone, etc. I've done it once and it was just about the most stressful thing I've ever been through. It's also a huge millstone if you are simultaneously working at the acquirer.

throwaway9870 5y ago

Interview them. That is what we did and it worked great. Where are you located? I used ours twice and both times was happy. You can incentivise them to push for higher prices with the terms you offer them. The ones I worked with were highly motivated and skilled at pushing higher.

stpe 5y ago

Pick any of the big four; PwC, EY, Deloitte, KPMG. Typically they'll do a valuation and put a bonus threshold. x% under, x+n% if over.

tmcz26 5y ago

Since these firms charge a % of the deal they have an incentive to get higher valuations. It also looks good on their resume. But you can just look at their portfolio and see the exists they worked on, the valuation, who the acquirer was, etc. You can try and reach out to some founders to check if they liked working with the advisor too.

hodgesrm 5y ago

We sold our company to VMware in 2014 with help from GrowthPoint Partners. Some learnings about the deal. * Find multiple firms and interview them carefully. They have to sync well with your board because you'll need a high level of trust to get the deal done. Check references. * Good advisors have done a lot of deals and have a lot of connections in the vertical you are in. They should be able to list possible acquirers off the cuff and why you are a fit. If they can't do that, move on. * You want somebody who can run the deal process - which is really time intensive - while you run the business. It's really hard to do both. * Good advisors will guide you through every step of the process from developing the pitch deck to acquirers to due diligence at the end. You'll quickly realize how little you know about any of these things if it's your first time through. If they aren't hands-on, again, move on. The fees may seem high if you've never done a deal. They are justified by the potentially huge swing in price if you get somebody good. You can be looking at a 2x difference in price if you get multiple bidders. Comp the advisors on outcome and give them unlimited upside for a great result. It's just like comp'ing sales if you've done that. Just my $0.02.

troydavis 5y ago
I echo this strongly: > * Good advisors have done a lot of deals and have a lot of connections in the vertical you are in. They should be able to list possible acquirers off the cuff and why you are a fit. If they can't do that, move on. … as well as someone else's comment that the terms in the engagement letter are negotiable. If a banker claims that their interests are aligned with yours, then turns around and delivers an engagement letter with a huge fixed fee and little or no variable fee based on outcome, either negotiate or move on. We used Cascadia Capital when Papertrail was acquired and I was very satisfied (https://www.cascadiacapital.com/case-study/papertrail/ https://www.cascadiacapital.com/case-study/papertrail/, https://www.cascadiacapital.com/story/cascadia-capital-advises-papertrail-in-acquisition-by-solarwinds/ https://www.cascadiacapital.com/story/cascadia-capital-advis...). Since we were entirely bootstrapped, their fee came directly out of our proceeds, and it was completely worthwhile. (If any founders read this, have a serious opportunity at a $20+ million offer, and want a sounding board, feel free to contact me.)
- 5y ago