Your M&A Advisor: Questions to Ask and Things to Consider

Whether you’re buying or selling an IT services business, the M&A experience can be stressful and exhausting, especially if you try and go it alone.  Not only can an experienced M&A advisor lift some of the burden off your shoulders by taking on individual tasks related to due diligence and negotiation, but they come with a great deal of strategic expertise including industry-specific knowledge and relationships with potential business partners.

Conduct your own due diligence to retain an advisor you can trust and has your best interest at heart throughout the entire process. This is critical to achieving a high valuation and a trouble-free close.

Here are 9 important criteria to assess when evaluating a potential M&A advisor.

1)      Trust: While this is a business transaction with lots of financial data to pour over, at the end of the day the success of your transaction will be based on your personal relationship with your M&A advisor. As you get to know one another, you’ll probably share more private information with them than you ever anticipated. Conversations between business owners and advisors can include private chats about a contentious spouse, frustrations over the company’s limitations, previous business failures, health concerns, or other issues that you might not even tell a close friend. It’s critical that the M&A advisor you select is not a trusted advisor in name only, but that you genuinely trust them.

2)      Availability and Responsiveness: Whether buying or selling a business, this process takes time and continuous communication. Phone calls and in-person meetings may be required during normal business hours, early in the morning, in the evening, or on weekends. Select an advisor who understands your business needs and is flexible enough to work around your schedule. In addition, are they responsive? How prompt are they at returning calls and emails? A successful deal requires you to respond quickly to an offer. Time is of the essence and slow responses can be the difference between securing a higher offer or losing it!

3)      Organization: You may think that being organized is a trait which any successful business should have. But, consider how the potential advisors with whom you have interacted work with you. Does the advisor meet his/her commitments? Are they constantly late for calls? Have they done their homework before meetings so they can add value to your discussions?  Being organized is not really something you think about but when someone is not organized you can spot it immediately. It not only reflects poorly on the advisor, but it will have a significant impact on the outcome of your business’ purchase or sale.

4)      Executive Advisor vs Junior Staff: An advisory firm attempting to close a new client will often assign the company’s senior executive to meet with you to ensure you feel comfortable with the firm’s capabilities and their ability to provide you with a successful outcome. However, when the contract is signed, they often pass you off to a more junior M&A advisor with less experience and/or industry knowledge. Will the executive with whom you have initial conversations be the same person with whom you will work? Having consistent communication with the same person throughout the process enables you and the advisor to develop a trusted partnership based on a deep understanding of your business and goals.

5)      What is Their Client Workload?: The M&A process takes time to complete.  Does the advisor have the time to produce a successful outcome for you or are they spread so thinly that you’ll receive the bare minimum in terms of service and attention? While you may want to steer clear of a firm with a large number of clients because they may not be able to give you the attention you deserve, this may also mean that they’re very successful, with M&A candidates actively seeking them out. On the other hand, a firm with only a handful of clients may have the time to dedicate to you but they may have a small client base because they have a reputation for limited knowledge or expertise. It’s important for you to assess the firm based on all these considerations.

6)       Industry knowledge: Just as you would evaluate the years of IT industry experience if you were hiring a new member of your executive management team, you should also evaluate your potential M&A advisor’s past performance and reputation in the IT industry. Have they acted as an advisor or broker for web hosters, MSPs or other IT service providers in the past? An advisor who is a specialist in IT services businesses can anticipate and help you steer clear of challenges which may come your way. They also have an in-depth knowledge of the market, competitors, and the nuances of your products, services and technology. This will enable them to more quickly spot opportunities and potential unlikely business partnerships which could end up being very lucrative.

7)       Reputation: While an advisor’s reputation could be addressed in several of the items above, we believe it’s important enough to stand on its own. The IT services industry is small in the sense that everyone knows everyone. People regularly change jobs and recommend respected colleagues and industry insiders to one another. If a person has been in the IT services industry long enough to become a trusted advisor, they have built a well-respected reputation over time. If a potential advisor has continually burned bridges by not working in the best interest of their client, the word goes out around the business community and it’s not long before that advisor will be out of business. Ask to speak to business owners, industry consultants or other IT executives with whom the advisor has worked. Was the best interest of that business owner their top priority? Do they possess many of the traits that we are discussing here – industry knowledge, trustworthiness, responsiveness, honesty, organization, or availability?

8)       Industry Contacts: While it’s important to be knowledgeable about the changes taking place in the IT industry, it’s also important for the M&A advisor to maintain a Rolodex of industry contacts (buyers and sellers). An advisor who is well established in your industry can not only help you endure impending business storms but introduce you to potential buyers, sellers,  partners and other resources you should know. Speak to them about their connections and access their industry resources to see if they can add value to your transaction.

9)       Mediation: Mediation is defined as “a dynamic and interactive process where a neutral third party assists disputing parties in resolving conflict through the use of communications and negotiation. Mediation is forward-looking with the goal being a resolution that each party can live with and trust.” Although you may not feel it’s necessary to hire a personal advisor to work with you throughout the entire M&A process, it may be helpful to hire an advisor who can act as a mediator during the valuation phase, contract negotiations, or even post close. An impartial mediator can help establish a level of trust and understanding which can lead to a successful outcome for both parties.

Whether you’re buying or selling a web hosting, MSP or other IT services business, this is an important life event. Anyone can call themselves a business broker, but a true M&A advisor will become a confidant, counsellor, and partner. Selecting the wrong person can significantly disrupt the process, reducing your business’ value and possibly ending the negotiations all together. Having the right person who is by your side throughout this journey will help align you and your business to deliver the most profitable and successful outcome.

Experienced M&A Advisor: The Host Broker

Founded in 2005, The Host Broker has been the M&A advisor of choice for web hosters, MSPs, data centers, IaaS providers, IT security firms, SaaS providers, ISPs, and systems integrators for 14 years. We have successfully completed hundreds of transactions, working closely with both buyers and sellers. Our experience enables us to anticipate roadblocks and hazards while also uncovering unexpected opportunities.

Call us at 1-888-436-5262 to discuss how we can help you on your M&A journey.

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