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The 4 common arguments against hiring an M&A advisor – and why you should

by on October 30, 2013

i-can-do-it-myselfLet’s say your the CEO of a company and you’ve found an interesting target, whether by design or by accident.  You’re very interested in looking closer and think, “We can do this ourselves.”

The thinking goes something like this:

  • Managing M&A is tough, but it’s not rocket science. It just takes good execution. We know our business  better than anybody.
    • Response: True enough, but how well do you know the target’s business? This isn’t the time to risk a flawed – or slow – execution. Some outside help, focused on targeted trouble spots, will increase your chances of getting the outcomes you want and avoid predictable pitfalls.
  • This deal is already costing us a lot of money. We can’t afford to add even another 1% to the cost of the deal.
    • Response: Don’t lose sight of the big picture.  Because deal value erodes rapidly, you may not realize the expected value of the transaction if you don’t execute effectively and quickly. You’re losing way more value than whatever it would have cost for some help.
  • This is really about accountability. If we don’t run this ourselves, how will we own its success in the long term?
    • Response: Decisions definitely need to be made by you and your team. Help them take charge and own their decisions by giving them some leverage – especially in due diligence, integration execution and transaction execution.
  • We can save money doing it ourselves.
    • Response: I’m going to spend a lot more time responding to this one below.

We  Can Save Money Doing it Ourselves

I’ve heard this argument so many times and each time I’m left wondering, what am I missing?

An acquisition isn’t done by one person.  It’s done by a TEAM of people.  So what happens is the CEO pulls his management team from their daily jobs and tells them to “moonlight” on this deal.  Many are deal inexperienced, overwhelmed and overworked and not given the tools, training and resources they need to be effective. And, they definitely come at a cost.

Just because they’re employees doesn’t mean they’re free. This is one of the single greatest (and most stubborn) misconceptions about the cost of M&A deals.

A Deloitte study stated that, on average, M&A deals incur internal resource costs of 1%-3% of deal value on any given deal. This is real money. And this cost isn’t even risk adjusted to reflect the quality, experience or competence of the team – not to mention the opportunity cost of executive and staff time.

Bottom Line

Here’s the bottom line. Take an honest look at your deal and integration team and ask yourself where you might not have the skill set and capability to deliver quickly. Do what you can with your corporate team and bring in focused support where you don’t have the experience, time, patience, objectivity or track to get it done quickly in-house.

That doesn’t always mean hiring an adviser to assume primary responsibility for the deal. It can mean using advisers in a very limited and focused way to enhance the potential  to realize the expected benefits of the deal.

The key is finding an adviser that can help you think through the strategic objectives of the transaction and risk profile and then find ways to add value and complement the capabilities of your deal team.

How do I uncover what the Seller doesn’t want me to know?

Let’s go back to the example I started with, that you’re the CEO and you’ve found a company you want to take a serious look at.  You’ve had discussions, are in the same range in terms of price, you may even have a Letter of Interest or a Memorandum of Understanding in place. Now it’s time for some serious due diligence.  Maybe you think you can do it yourself.

Everyone knows you have to do due diligence in the M&A process, if you’re buying or selling a company.  But what does that mean, what’s the point? The easy, and WRONG, answer is to find the problems in the company you’re looking at.  This will only tell you if you should NOT do a deal.  But that perspective, of looking for problems, will not tell you if you SHOULD do a deal.

What I am saying is that the due diligence needs to do more than look for problems.  It also needs to focus on the combination itself.  It’s called “Forward-Looking Due Diligence“.  Forward-Looking Due Diligence explores whether the potential of the combination — however enticing — is realistic.


If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn the 5 step process on How to Quickly Increase Your Valuation: a Proven 5 Step Process.

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  1. I see you have reposted my post about VCs buying companies. I’m flattered. I’m glad you found it of some value. If you’d like to repost it I’d appreciate credit for writing it – a simple statement saying this was written by me or was originally posted on my site. Thank you.

Trackbacks & Pingbacks

  1. How do I uncover what the Seller doesn’t want me to know? | Mike Rogers
  2. VCs Don’t Know How to Buy Companies | Mike Rogers
  3. Mergers are Seismic Events | Mike Rogers
  4. VCs Don’t Know How to Buy Companies – ENTREPRENEUR'S WORLD

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