How important are M&A advisors when selling the company

We’ve got a B2B software company that has gotten some fair traction making about $200K/year in revenue after 3 years in business. After modest salaries, we are breakeven. Lately I noticed that some of the larger players in the space are starting to incorporate features of our solution into their software. Since there are multiple players in this space we feel its probably best to try to get ourselves sold to one of the other companies instead of getting VC money and duking it out.

The few people I’ve spoken to say that its absolutely crucial we engage with an M&A firm vs just reaching out to the companies ourselves. I’d love to hear of anyone who has gone through a sale of a company of this size and their thoughts on M&A advisors.

  • I’ve gone through the sale of a company a few times and yes it is crucial to engage M&A advisors if you want to maximize the number of companies competing for you, your sale price and agreeable terms.

    The person negotiating the deal for the acquiring company has probably done scores of deals; you’ve done none.

    When a novice sits down at a table of card sharks and asks them to teach him to how to play poker… they will.

  • Absolutely not with that level of revenue. Your revenue is trivial. Until your revenue is at least an order of magnitude higher, there’s not going to be an M&A firm in the world where it will be worth their time to work with you.

    Your best best is an acqui-hire for a few hundred K and signing bonuses for your team. These can be executed quickly and without the painstaking due diligence of a real acquisition.

    • Well an aqui-hire situation would not be ideal so we may have to put out a feeler to the larger companies ourselves and if it comes out empty, to just find a niche and continue our existing path.

      • Could you give us some more specifics? Having no revenue but selling for 100M+ with 10M VC backing is different than bootstrapping and selling for 500K.

  • +1, We’ve been doing our introductory phase with these types the past few months, looking for an exit in 18-24 months. While they are very complimentary and will monitor us, they all want us to get to the 7-10m range before getting serious. We are at 4m with an ebitda of 2m. I’m sure it varies by industry, but they are looking for 3% of the purchase price, so theoretically an exit in the 20-30m range they are looking for a commission of 600 – 900k. A couple of them have sent out feelers to industry leaders and the response is the same, get to 7-10m and then we have something. Again, it’s going to vary by industry, but these guys are looking for 500k+ paydays.

    Never been a part of the acqui-hire thing, but seems like that’s a good option if possible.

      • Yes, industry average for us is 3x revenue or 9-12x ebitda. Our ratio skews heavily towards a better ebitda valuation, so we are trying to achieve those multiples.

        For our industry, there seems to be only a handful of people who are connected to the top players, and they all work for large firms. I’m sure there are consultants out there who will take a retainer and work it off hourly trying to make connections, just doesn’t work for our industry.

  • Agree with other commenters, 200k revenue = too small to justify M&A firm fees. However, you can track down a smaller, individual M&A advisor that will have time for you and cost less. Where? Between asking around in banking/finance circles, your network (esp founders/execs of companies that were sold) and LinkedIn, you can find a seasoned ex-employee of M&A firm/dept that is now consulting.

    • Thank you for the advice! In your experience is that how those smaller “aqui-hire” type deals are done? We’re not looking at being acquired just for the talent but may end up with similar valuation.

      • Yes, many “aqui-hire” type deals (bigger/smaller) are achieved thru the connections of company’s investors’ and/or founders (if they’re connected serial entrepreneurs).

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