If we were a prospective client, evaluating whether or not to hire a particular M&A advisory firm, here are 5 questions we would pose:
What is the incentive structure within your firm? Several partners will show up to pitch, but come execution how many are really involved? Experienced clients know the reality; banks’ internal comp systems get in the way of seamless global delivery. The issue is who gets paid for what. All partners benefit from signing the client, but typically only the lead partner has sufficient incentive to stay involved throughout the process. Find out: how much more does a banks’ US “support team” stand to make from pursuing a local deal than supporting you?
Beyond sector, how relevant is your experience to our type of deal? Often sector knowledge is far less important than having the “right tools for the job” for the type of deal. Many prospective clients want to know about relevant experience, though nearly all limit themselves to specific sector knowledge. But very often the key to maximising value is relevant experience with the type of deal being pursued. Creating a very high-multiple transaction based on accelerating buyer’s time to market is fundamentally different than maximising the multiple of profits based on selling achievable cost savings.
What experience does the firm have handling complex shareholder/board dynamics? Too often the key to a successful deal is managing one’s own side, not the buyer. Part of hiring an “advisor” is having someone who brings together different views around the seller’s board table. This is much harder to do than it seems; these different “views” are often driven by radically different economics. Understand how the team, especially the lead senior person, has managed these situations in the past, and ask for references specific to this issue.
Can the firm give examples of complex deal structures that were successful? In the highest value deals, there is a greater reliance on earn-out, milestones, or deferred payments. It can be a source of significant, sometimes unexpected, value. But the risks are huge. If badly structured, they create nothing but future acrimony between buyer and seller. Understand the experience, thought process, and approach the team would have to put such a deal structure together.
What will each team member actually do on the project? Bait and switch is so common that prospective clients joke about it as an inevitable fact. Nothing could be further from the truth. If you are a potential client for any reliable banking firm, you deserve the senior attention you need. There are only ever 3-4 people driving any deal even at the largest advisory firms (for example Goldman Sachs operates with this size team for $1bn+ projects). Ask the firm to set out in detail all aspects of the transaction, and what each team member will do on each aspect. Be careful of firms that say the senior partner will “oversee the deal” and make sure to interview every member of the deal team, as you will be relying on all of them.
There are several other questions which come to mind; stay tuned for another post on this important topic.
Posted by Victor Basta @MaExits