Before you hire an M&A advisor, get a second opinion

Most owners learn the market for their company slowly. A seminar here, a webinar there, a newsletter, a cold email from a broker, a call from a buyer who "would love to get to know you". Each of these is useful. Each also asks for the one thing a busy owner has least of: time.

I think a busy owner should not have to study the M&A market to understand their own options. They should be able to sit down with someone who knows it, describe the company, and hear plainly where it stands and which way to go.

This note is written for owners of software and IT companies. For exactly this decision I run a separate review with a fixed fee and no obligation to start a sale: the Strategic Options Review. More about it at the end.

How the first conversation usually works

Most sell-side firms meet owners for free. In that first meeting the firm asks about revenue, growth, ownership and timing. Its real question is whether you are a client it can take to market.

That is a fair question, and the model behind it works: the firm earns its fee later, when you sign an engagement and the deal closes. A free first meeting can be useful. But it also has another job: the advisor decides whether to take your company on. That is not the same as a separate review of all your options.

What owners usually do not know at the start

In my sessions with founders, the same questions come up again and again:

• Is now the right time, or should I build for two more years?
• Who would actually buy a company like mine?
• What makes it worth more, and what quietly pulls the price down?
• How long does a sale take from the first call to the money?
• Do I need an advisor, and what kind?

None of these has a general answer. Each depends on your sector, your numbers and what you want from the next ten years.

Who buys companies like yours

Buyers are not one group. They look at different things and pay for different reasons.

• Strategic buyers are companies in your field or next to it. They buy products, customers or teams they would otherwise have to build. They often pay most for a clear fit.
• Private equity funds buy either a platform, a company to build around, or an add-on to a company they already own. They look hard at recurring revenue, margins and how much the business depends on you.
• Search funds and independent sponsors are individuals or small teams buying one company to run. They are often a good fit for owners who care about who takes over.
• Family offices invest private wealth, often with a longer horizon and fewer rules about timing.
• Your own management team can buy the company, usually with outside financing. It is a common path for succession.

Knowing which of these fits you changes everything that follows: what you prepare, whom you talk to, and what you can expect.

A full sale is not the only path

Owners often think the choice is between selling and not selling. In practice there are more options:

• A full sale. You sell the whole company and usually stay for a transition period.
• A majority sale. You sell control and keep a stake, which can be worth more at a second sale later.
• A minority investment. You raise money for growth and keep control.
• A merger with a company of similar size.
• A management buyout or a planned succession.
• Grow and prepare. Sometimes the best answer is to wait, fix what lowers the value, and come back in one to three years.

The right path depends on your goals as much as on the market. A good conversation starts there.

What moves the value

Two companies with the same revenue can sell for very different prices. Buyers look at the quality of that revenue, not only its size:

• How much of it repeats every year, through contracts or subscriptions.
• How much depends on your largest customers.
• How much depends on you personally, and whether the team can run without you.
• Margins and how clean and consistent the financial records are.
• Growth, and whether it can continue without heavy new spending.
• Whether the company truly owns its product, code, data and accounts, and what it would cost to keep them running. This is where a technical review often finds surprises.

Some of these can be fixed in months. Others take years. It helps to know which are which before a buyer points them out.

How to check any advisor's incentives

Whether you hire an advisor now, later or never, ask anyone who advises you how they are paid. Good advisors answer these questions plainly:

• Do you charge a monthly retainer, a success fee, or both?
• What is the success fee calculated on, and is there a minimum?
• How long is the exclusivity, and what happens if I stop?
• Is there a tail, a fee on deals that close after we part ways?
• Who exactly will work on my company?

There is nothing wrong with a success fee. It simply means the advisor is paid when a deal happens. Knowing that helps you weigh the advice.

When a second opinion helps most

A second opinion is most useful at three moments:

• Before you start. You want to know where you stand before you talk to anyone who has something to gain from your answer.
• When an offer arrives. A buyer or a broker approached you, and you need to know whether the offer is serious and fair.
• Before you sign. You hold an engagement letter or a letter of intent and want another experienced view before you commit.

At each of these moments, an hour with someone who has seen many deals, and whose fee does not depend on your answer, can save months.

A paid first look

This is why I offer a paid second opinion, the Strategic Options Review. Two private calls and a written report about your company: where it stands, which paths it has, who may buy it, how the market values similar businesses, and what to do next. You pay for the advice itself. The fee is fixed and does not depend on whether you decide to sell, wait or grow, and I take no referral fees from advisors or buyers. Sometimes the answer is not to sell yet: what to change first and when to come back. Nothing further is required. If after that you decide to hire an advisor, you will know what to ask and what to expect.

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