by Cristian Anastasiu, Excendio Advisors

I’ve known John (not his actual name), the owner of an IT company, for some time. We spoke several times about the M&A process and how we, as advisors, can help him; while interested in potentially selling, John was not quite there.

Then, one day, John called me and told me that he accepted an LOI from a buyer that, John said, I know well. “What do you mean?” I asked. At some point during the conversation between John and the buyer, my name came up, and the buyer told John that they know me from representing other sellers and from industry events. The buyer recommended John hire me. “If Cristian is involved, the chances of a deal closing and you getting what you want out of the transaction increases”. John however decided to move forward with the LOI and due diligence without engaging Excendio.

A few months later, John called me and told me that the deal fell through.  John also said that he now understands the value an outside, trusted advisor can bring and agreed to retain Excendio.  However, John said, there is one more thing.  Just a few days prior, he received yet another offer from a buyer he previously met and would like to have that buyer included in the process. I agreed and we signed the engagement.

We then began the M&A process, wrote the memorandum, and reached out to select buyers, including John’s named buyers.  Within hours of receiving the memorandum, John’s buyer called John, thanked him for the document and presented an expression of interest significantly improved over the offer made just a few weeks ago.  If John would have accepted the offer as it is, his return on the commission he would pay Excendio, based on the improved offer, would be 400%. However, we continued the process and after a short period of time, we received a few other offers from buyers we brought to the table. John’s buyer offer was not in the top 3. It goes without saying, John decided for one of our buyers and the deal successfully closed a few weeks later.

We will probably never know why the buyer improved his offer so significantly after reviewing the memorandum.  Was it the way the information and opportunity were presented there?  Or more likely was it the realization that with Excendio in the mix, John will have many other options very shortly?

So, what’s the point?

  • The probability of closing a (successful) deal with one single buyer is very low… less than 1%
  • An advisor can help a seller increase the proceeds significantly, and net more than if no advisor was involved, even after paying the advisor
  • When an advisor is involved, a buyer knows that there is competition, and the business owner is motivated and prepared, not just curious
  • When working with an advisor, a business owner saves time and can focus on running the business, which is what he does best. As opposed to spending time on M&A, which the advisor does much better.