Heads up for ECM, BPM & BPO software executives by Mark Edwards, CEO - Document Boss

Spilling the Beans On M&A Advisors

01 February 2016


by Mark Edwards


The Whistle Blower!


After more than twenty years in M&A, I am starting to get an understanding of what really goes on in the M&A world.  I have never been somebody who pays too much attention to competition as my aim with Document Boss, as with previous companies I have started, was to build something unique.  That probably stems from my innovative tendencies and my desire to create something original; never a copy.  That can be both a blessing and a curse, and I switch between thinking it's one or the other, depending on how my day has gone. However, without setting out to do so, I have absorbed a lot of knowledge about what goes on in the M&A world and, to be frank, it's not a pretty picture. 


The Good, The Bad & The Ugly


Like any, and probably every industry, there are the good, the bad and the downright ugly service providers. I have seen all three in the past twenty five years. I am a great believer that consumers get what they deserve - a bit like the UK newspaper media; if we did not buy the poorer examples of sensationalist journalism then they would wither and die.  The same could be said for M&A advisors that seem to survive, based upon doing business with poorly informed business owners and shareholders. 

My aim in this blog post is to spill the beans and expose some of the poor, outright immoral and underhand practices that go on and to help educate business owners with regard to the important elements of an M&A process and how to select and hire a reputable M&A advisor.  


The Many Challenges of Selling Your Business


The first of the challenges is to know who to trust as your M&A advisor.  In just the past few weeks alone, I have spoken to 3 companies who each had two failed M&A processes under their belt.  This can harm the value of your business and, not least, be a distraction and a waste of time and money.

Some common misconceptions proliferate when assessing which M&A Advisor to engage. Requesting details of all closed deals is not necessarily the answer to selecting the right advisors.  One of the biggest M&A advisors in Europe and the USA would be able to show you a very long list of what they present as successful assignments. They are a big company and well known throughout both regions.  


The Number Players


These players are very proactive (The Number Players), conducting very convincing multiple weekly introductory seminars in several countries every week. Their engagement from these seminars, where attendance ranges from 60 to 80 people, means that they may be signing up around 10 new companies a week.  Their successful closure rate for their clients is an appalling 5 - 7% - Yes, that’s just 5% to 7% of these assignments result in finding a buyer for their client.  However, with their engagement fees they make a very good profit, regardless of this poor success ratio - and even with only 5% closure rate, they still have plenty of new companies to use to show to prospective new clients.

To make a comparison, Document Boss has a closure rate in excess of 80%.


Engagement Models


When it comes to engagement models there are many executives who don’t really think through what is a very important agreement.  Probably less prevalent than it was a few years ago, the “Success Only" fee engagement model may seem a great, no risk way to work with your M&A advisor. However, if you think it through carefully, it is actually anything but.  Firstly, any M&A advisor that is willing to take on an assignment on a success fee only basis is either desperate - and then you have to ask yourself why are they so desperate for business - or, they are what I would call “chancers”.  They are going to cobble together some documentation and then pump it out to a few of their contacts in a "spray and pray" approach.

Selling your business for the best valuation should never be taken so lightly and it will require firstly a lot of thought, considerable research and then just plain hard graft.  There is no way to get away from this. What company would be willing to conduct months of up-front, unpaid work?  The answer is, "No reputable company." because such work is never conducted.  

Corners are cut and the minimum amount will be done. In fact, after a few failed, feeble attempts from your 'M&A Advisor', you will probably end up having to write the documentation yourself.   During this process you end up spending so much time and becoming so frustrated that it would have been better if you had written the whole thing yourself from scratch. An additional point to consider is that, although possible, it is never the best course of action for the client to write such documentation, as the senior executives working in any business can never be objective enough and will not have their finger on the pulse of current acquisitive trends.

You need an outsider’s scrutiny, which can often uncover the real "diamonds" in your business, which may be hidden from your view because you are too close. 


The Bees - Fast Stingers


Equally, you need to be aware of the M&A advisors who will attempt to charge you an enormous up-front fee (The Bees (Fast Stingers)).  I have seen amounts of $200k charged and, in one particular case, that I am aware of, this resulted in two face-to-face meetings, neither of which resulted in a sale and one of the meetings was described as such a poor fit it was embarrassing for all involved. 

There does need to be some form of risk sharing and up-front engagement fee if you want a professional M&A Advisor to work on your behalf.  By engaging the right company for your organisation, you can benefit from solid advice on the existing market climate, timing, current trends and a candid overview of the most important aspects of your business, which will highlight any changes that may need to be made before your business is proactively presented to qualifying buyers.


The Dreamers & the Sleepers


Over the past year, I have also come across stories of M&A advisors who will charge a very high monthly retainer and promise success in a very short time frame (The Dreamers).  It seems that their fees can be in the region of $50k+ per month and, for the first month they work hard and you have their full attention.  If they have not managed to find a solid group of buyers in month one then, towards the end of month two, you start to notice that their activity level has dropped off markedly.  By month three, you may as well burn your monthly retainer payment for all the good it will do you.

There are also the M&A advisors (The “Sleepers”) that will charge a monthly retainer, much lower than the example above, but will try to extend the process for as long as possible.  I met an M&A Advisor a number of years ago, with this engagement model, who said, “We usually wait 6 months before doing anything”. Fortunately, you don’t tend to come across this practice as much but beware; there are still the M&A Sleepers out there 


Success Fees


Now to tackle the thorny subject of success fees..  What is the correct amount? There is no single correct answer on this subject. Years ago, there was an industry standard, of sorts, which many M&A Advisors used as a guide – This was the sliding Lehmann scale.  However, the influence of this fairly logical scale has declined in recent years.  There are many factors which can affect the success fee percentage, the most important of which is the size of the company or, to be more precise, the final sale price.

A couple of months ago I was in early stage discussions with a very attractive little company with revenues below £25M.  The business had grown well and was forecast to continue to grow.  Unfortunately, their understanding was that the fair success fee percentage would be 1% or less.  I was not clear where they had picked up this perception but realised, in the end, that they were not going to change their opinion any time soon, so it was easier to walk away.  


Equity Value Accelerator Service


The business would not have been an immediate sale mandate for Document Boss, but would have needed to be built up in size, using our Equity Value Accelerator (EVA) program, prior to a sale. This could have been anything from an 18 month to 3 to 4 year process but I was confident that their objectives would be achieved if they worked with the right advisors.  

However, the only way they would find a company to work on that low percentage for a company of that size is if they were to approach a business broker, who would effectively simply place an advert for the business on a number of internet websites. As business brokers typically work with very small, local businesses such as retail stores and small, mainstream, manufacturing companies, the likelihood of a successful outcome for such a business is unfortunately, minimal.


The Hopeful & the Inflators


Prior to engaging with any company, Document Boss always conducts a “Sanity Check", to ensure that at least three of our senior executives feel we can achieve the objectives of the M&A Mandate.  Without this confidence and knowledge, we will decline the assignment.  It does nobody any good to take on an mandate in the hope that it can be closed, if perhaps, the wind is in the right direction and we might just see a blue moon later this month.  However, there are M&A Advisors that will snap up any business that comes their way (The Hopeful), regardless of whether it is a good fit for them as a company.  Getting this elementary selection stage wrong is a “lose” situation for both parties.

The other tactic that you need to beware of is from the advisors I would call "The Inflators" – These are the M&A Advisors who play to the egos of business owners.  In order to win the engagement, some M&A Advisors will over-inflate the value of a business, ignoring any important challenges it presents; then, after a few months, they will report back with the "bad news".  Document Boss’ internal “Sanity Check” is a safeguard against this - and we always report back to our clients with honest and frank feedback.  Our approach sometimes causes upset or a few "bruises" but we believe in 100% openness with our clients, no matter how much it may initially sting.


Investment Bankers


Now we come onto my favorite subject: investment bankers. For those among their number who are unscrupulous, I was going to refer to them using Cockney Rhyming slang. In the interests of propriety, I will instead call them The Bean Counters.  These big firms are typically focused on the very largest M&A deals - Ideally, deals that end in a big B instead of a little M.  Again, you have a choice of The Good, The Bad and The Ugly.  One thing is for sure, they can all create some wonderful presentations and analyses.  The reason being, that they have plenty of staff and they spend a lot of money putting such presentations together.  

Over the years, I have come into contact with a few such investment companies that have been focused on the Information Management sector and, even though the conclusions in their reports were utter garbage, the information was so well presented I almost believed the stats and figures myself! These guys love to put together PowerPoint presentations and work on spreadsheets and, when the going gets tough, they will also engage with smaller businesses, which in no way match their methodology.

Along the M&A path they will also find a myriad of additional services, both legal and financial, that they will invariably try to sell to their hapless clients.  Again, the arguments can be very persuasive and so expertly presented. 




Having highlighted some of the M&A Advisors to avoid at all costs, it is probably a good idea to mention what to look for in the right specialist advisor when selling your business. If you drop the ball here, you could have failure staring you in the face as not all advisors will decline if companies approach them, which are not a good fit for their knowledge, skills and network.  

If you want the best outcome as well as a decent valuation for your business, it is absolutely essential that the M&A Advisors you engage have in-depth knowledge of your sector, the market and its drivers - and I can't stress enough how vital this step is.

The objective for any company wishing to exit is to be involved in a proactive M&A process and to gain the attention of multiple, attractive, qualified buyers.  To achieve this, your M&A advisor needs not only to know and understand your sector but also to be able to gain a very rapid understanding of your business in order to be able to articulate its value in the market place - probably better than you can yourself. 


What Do You Really Need?


I want to be really clear here; not all M&A Advisors are bad or ugly.  This is just a short (ish) blog / rant to illuminate a few of the pitfalls as, in my view, a better educated, prospective client is less likely to make a later mistake that could cost them $$$$ millions.

Despite all of the above doom, gloom and warnings, I would like to finish on a more positive note by focusing on what it is that you really need from an M&A Advisor. Number one is that, however you look at this process, it is first and foremost a sales process.  You need a company that can first identify and then, clearly articulate the value of your business - probably unearthing “diamonds” you didn’t know you had.  They need to have a thorough understanding of your business and the sector in which you operate.  You also need an M&A Advisor that will tell you when you are wrong.  You really don’t want to employ “Yes Men”.  They could very nicely cost you a lot of money by not wanting to put their head above the parapet. 


A Close Partnership throughout the M&A Transaction


In addition, you will also need to engage people whom you can work with on a personal basis: you will have a close working relationship with your M&A Advisors and, if you would prefer that the person sitting on the other side of the table was actually sitting on the other side of the country, then you should stop right there and find somebody else.  

Your M&A Advisors also really must have an excellent industry network and should be able to understand the market drivers and have the ability to articulate them with some level of genuine authority.  You don’t want an M&A Advisor who has just spent the last few days reading a few industry reports in order to gain a few buzz words in order to sound knowledgeable.  You need to know that their knowledge is not veneer thin.  If you have even a modicum of intelligence and access to the internet, it is very easy to sound knowledgeable for a single face-to-face meeting.  However, you need to be certain that your M&A Advisor won’t start floundering at a critical point in the negotiations, when their superficial knowledge of your industry dries up.


Get it Right First Time


As I mentioned at the beginning of this blog, in just the past few weeks, I have met with a number of companies that have been on the painful road of M&A failure.  On a number of occasions, Document Boss has picked up these failed M&A processes and successfully brought them to a very satisfactory conclusion for our clients. However, this is by no means our preferred route.  

Starting with another M&A Advisor's failure makes our job much harder and is very frustrating for our new clients. It also means that we start with somewhat cynical clients that we have to turn round over time.  However, it is also true to say that some of these M&A sales opportunities have been so badly conducted that we have had to decline them because of the damage caused to the businesses concerned by the failed M&A process.  It can take years to recover from a failed M&A process and that is why, just like the parachutist, you need to get it right first time.



Mark Edwards

Document Boss

Boss M&A Whispers