As an entrepreneur and business stakeholder, whenever you want to choose an advisor, either a mergers & acquisitions (M&A) advisor or legal advisor, for helping you raise capital, sell, or buy a company or an asset, you should carefully select and assess them based on several specific criteria. This article will provide you some elementary and basic tips on what to consider. 

Objectives 

First, to understand who is best suited to support you in a fundraise, an acquisition or sale transaction that would impact substantially your life as well as shape the future of your company, you should have a clear answer to “whether” you need an advisor and “why”. To get to a clear answer, you need to define your own objectives and needs. This step will help you determine what resources you’ll need to achieve your goals and whether any advisor is needed at all. 

Resources & Capabilities

Once your objectives are defined, the next question should be whether you have the internal resources and competencies to complete such objectives. The resources and capabilities, such as human capital, knowledge, skills, budget, time, access need to be properly assessed against the objectives to determine whether they are available internally or would need to be brought in or outsourced. 

It is common that entrepreneurs, as natural instinct fixers, rely on themselves to solve issues as much as possible in-house. While this may be the right decision depending on the stage of your company, usually in the early days, there might be advantages to get support from an external advisor when stakes are high.

Recommendations

If and once the decision to get an advisor is taken, typically the starting point is Googling and reading all about it (which is why maybe you’re reading this article!). When seeking an advisor, the common avenue chosen is the existing referral avenue: asking colleagues, friends and close trustworthy contacts for any recommendation and introduction to any valuable advisor. While personal introductions are certainly valuable and worth the talk, they could also at times be short-sighted, biased and might not provide you an exhaustive market view of quality advisors that are out there willing to establish and serve a new relationship. So, finding the ideal advisory firm and team that fits your needs and can support you to achieve those goals requires some initial due diligence and weigh the alternatives first.

Criteria for Decision

Whenever you start discussions with advisors and are assessing which one to hire, there are some criteria (in no order of priority) worth paying attention to in your decision-making process.

• Knowledge

• Experience & Expertise

• Location

• Size

• Process

• Access & Network

• Track Record

• Timing & Availability

• Pricing

Knowledge

The knowledge of an advisor on the industry, the location and its market specificities, the competitive landscape and regulatory environment you’re operating in are essential to provide quality and valuable services. While the knowledge is illustrated during the initial discussion and engagement phase with each advisor, it is also displayed and confirmed when the advisor needs to present your company to potential interested third parties and provide access to their network of industry peers.

In addition, you’ll be able to assess the depth of their knowledge by judging the questions they raise on your business, or the quality of the investment materials prepared on your company’s behalf. Their knowledge can be assessed through the insights they draw on the market outlook. Therefore, the knowledge of the advisor on your business and industry is key and can help increase the chances to close a deal with a serious and appropriate counterpart.

Experience & Expertise

As a business owner or entrepreneur, one of the first reason you seek the support of an advisor is their experience of handling situations that you are facing often for the first time, and their expertise of running a transaction process in a smooth and professional matter. Whether it is their experience of a specific industry, location, transaction, or client type, it is often what matters and what drives value in the heat of the negotiations. While it is acceptable that the advisor might lack deep experience on the location or the market you are active in, you might want to avoid hiring one that is running the deal process for a first time, because it means you are paying them to learn closing a deal, what you are doing too!

Location

The location is another impactful decision factor. The place where your company is incorporated as well as where it operates or where the advisor is are elements to account for when choosing an advisor. A local advisor for a relatively local transaction would be more knowledgeable and sensitive to local laws, which ultimately might avoid headaches down the line, such as tax concerns and regulatory requirements. In addition, corporate finance advisory is a regulated activity depending on the country, which makes the accreditation of professional advisor you hire even more important. In the United Kingdom, advisors are regulated by the FCA, while in the United States by the SEC and by the SFC and HKMA in Hong Kong. However, in some other countries the regulation is looser, and individuals can advise on a transaction without any local regulatory requirement. 

If you are an entrepreneur of a business that has a strong physical presence, such a running a manufacturing plant, warehouses, or stores, then it may be beneficial to hire an advisory firm that is closer to you to interact with so that they can get a good feel and understanding of your company’s daily activities.

In conclusion, depending on where your company is located, you might want to seek advice from an advisor that knows well enough the jurisdictions you’re based in.

Size

Company and transaction size is probably an arguable decision factor, so the saying “one size fits all” doesn’t hold necessary true in the M&A advisory business. Some advisory boutiques will argue that in spite of being relatively small, they can advise large multinational companies, and similarly the global investment bank claim to serve entrepreneurial clients of all sizes. 

While these can hold true, on one hand, small to mid-size advisory firms often tend to be more attractive for entrepreneurial firms because they share the same roots. On the other hand, if you run a large multi-national company, the complexity of your operations spread out across multi-jurisdictions would be daunting for a small M&A boutique, therefore you would be naturally more inclined to get support from a large investment bank. So, in reality size matters and nature usually finds its own fit. 

In his book “Built to Sell” by John Warrillow, the author suggests that you should “find an advisor for whom you will be neither their largest nor their smallest client.”

In summary, what matters is not so much the size of the advisory firm but the level of confidence you have in the advisor and the quality of execution of their team to help you achieve your ultimate objectives.

Process

Depending on the transaction you plan to go through, the transaction process is an element that should be clear and well mapped out before you decide to hire the advisor. You’ll need to make sure you understand what the different stages of the advisory mandate. Whether the objective is to support you in preparing the investor materials to present your company and its operations, list and find buyers, run an auction process, assist you in negotiations with the sale, any or all of the above, then the advisor should provide you a clear and well-organized timeline with milestones.

There is nothing more frustrating than signing a contract and not knowing what it entails, so if the process suggested is unclear, then you might want to seek other advisory teams to compare the different approaches.

Access or Network

The access and network of an advisor is defined by their ability to bring you in front of the appropriate investors, buyers or sellers depending on the purpose of the transaction. Every entrepreneur has their own network strength and so does every individual at any firm. The relevance of this factor might be underestimated and overlooked by business owners, who see the interested buyers or investors coming only from their own competitive landscape, while the advisor would seek third parties that are not only strategic buyers/investors, but also financial sponsors or acquirers, such as High Net Worth Individuals (HNWIs), family offices, and venture funds or private equity funds. Thus, the right advisor would assess the attractiveness of the business and expand the horizon of potential investors.

Having an advisor that has been active a long time in an industry, with specific sector coverage, could increase substantially the chances for a positive outcome during a mandate. Not only would they know who the right counterparts for your deal are, but they would have a strong and close relationship with them. The latter being translated in their ability to grasp immediately the attention of a potential investor or acquirer for your deal, which would significantly increase your chances to close it. Companies like Affinity, who are tackling this problem in a systematic and clever manner, will over time eventually bring more transparency around the strength of advisors, who would share and illustrate their network strength to the decision-making entrepreneurs when they are about to hire them.

Track record

A common attribute that could eventually sum up all the other criteria into one is the track record. An advisor’s track record refers to the number of transactions or M&A deals they completed, and those they were involved in and actively contributed to. Those achievements are usually illustrated by tombstones on each advisor’s website to reflect all the specific deals they’ve been involved and under what role. 

Typically, once a deal is closed, the transaction and the parties involved in it are showcased through public announcements on their respective sites, social media platforms as well as press releases. This is what defines the track record and the reputation of most advisory firms. Unlike B2C industries such as the restauration, e-commerce, travel, tourism or consumer products and solutions, the advisory industry remains relatively untouched by reviews of past clients. Although there are emerging platforms such as G2, Trustpilot that start to cover business service providers, this field lacks public information, and it is key to talk and seek references from past clients to determine their satisfaction level before engaging with an advisor.

Timing & Availability

While you are busy running your company, so are advisors serving the needs and projects of other owners. Therefore, it is important to find an advisory team that provides a dedicated team to your mandate, unless you are not in a rush to execute your transaction. While there is no specific time of the year when advisors are busier than others, during uncertain economic times, business owners start to question their company’s future. This leads them to be more sensitive to transition and change talks initiated by acquirers, sellers, or advisors. If you are in such a situation, do initiate talks with advisors early enough to avoiding the rush of finding the advisor that would be available.

Timing is also an important factor on when should you engage with the advisor, when should you sell your company and how much time you want to run the mandate for. These parameters need to be set in advance and discussed before engaging with the advisor so that you manage both sides’ expectations to avoid any frustrations at the end.

Pricing

Last but not least, the compensation of the advisor certainly plays a major role in the decision-making. There is no full transparency and standard pricing but a common practice among advisors to either charge 1) an active compensation scheme, meaning a monthly or quarterly retainer fee plus a success fee (i.e. you agree with your advisor to pay 3% success fee on a sell-side transaction of $50M, the success fee would be equivalent to a $1.5M fee to the advisor), or 2) a passive compensation scheme constituted of only a success fee charged on the size of the transaction. The first option is often a no-go for early stage companies because they simply can’t afford it or the amount raised would be simply too small to add a monthly fee on top of their operating costs. While the second option seems more advantageous for some business owners, it comes with its own limitations, such as the time and effort dedication of the advisor that would be diminished and after all, you’ll have to do all the heavy lifting of preparing the materials and listing the investors to talk to. Naturally, nothing comes free in life, so depending on your budget limitations and urgency, you’d need to define what to prioritize in order to have the expected final outcome.

While there will always be other criteria to consider when deciding on which advisor to hire, these are some of the most common seen across the industry.

For more information, please get in touch with us through our contact page or email us at hello@getana.io. As an independent platform, we’d be happy to guide you in your search for the ideal advisor.

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getana.io (or “get an advisor”) is an independent fintech platform where entrepreneurs and business owners in need of advisory services can search, find, and get matched with vetted advisors.