Empirical Evidence Confirming the Importance of a Transaction Advisor
A recent study conducted by Mercer Capital found empirical evidence supporting the retention of a financial advisor when selling your business. In this study, the pricing multiples received by those sellers who retained a transaction advisor were compared to those who did not. Our analysis revealed that the pricing multiples received by those sellers who retained a transaction advisor were significantly higher than those who took the For Sale By Owner (FSBO) approach, selling their business without hiring a transaction advisor.
In conducting this analysis, we reviewed transaction data in the banking industry, which is one of the few industries where this type of analysis is possible, particularly for smaller private companies. Factors in the banking industry conducive to this type of analysis include:
- Readily Available Financial Information. The banking industry is highly regulated and generally has a large amount of financial information made publicly available. Comparative financial information is difficult to derive for most other industries, particularly for smaller private companies, as most private companies do not make a comparable level of financial disclosure available to the public.
- Readily Available Transaction Pricing Information. Pricing multiples are generally readily available and easily accessible to market participants in the banking industry. Transaction information (including whether or not the buyer or seller retained an advisor) was available for over 1,200 deals occurring since 2001. It would be difficult to find this level of detailed pricing information, particularly those involving smaller private companies, in any other industry.
If you own a company in another industry, you may be thinking that our findings do not apply to you. Yet, this analysis is critically important to business owners considering selling their business in any industry. The availability of information in the banking industry allows business owners to have a reasonable idea of the value of a particular banking franchise, and one would suppose that the need for a professional M&A intermediary would be mitigated by the increased knowledge of the parties involved in the transaction. The transaction data analyzed clearly indicates that transaction advisors play a very significant role in helping owners maximize the value received for their banks, despite the increased level of information available. Thus, one can assume that the importance of a transaction advisor would be magnified in transactions in other industries, particularly those industries where both parties have less access to information.