We have previously posted an excerpt from a Coutts report into entrepreneurship and raising equity capital.
The report recommends entrepreneurs ensure they are properly advised when thinking about the sale of a business or raising equity finance. One question which sometimes comes up is ‘why use advisers at all?’ Here are some thoughts which emerged in the panel discussion around the Coutts report:
Why use advisers?
Some entrepreneurs think they can negotiate a deal themselves, and don’t need to pay expensive advisers to do it for them. After all, they have to negotiate every day – to get the right terms with customers and suppliers, to get the best out of their staff, and in countless other ways.
But a one-off transaction like a sale of your company is different, and there is a lot of value riding on getting the right deal. The issues are different, too – often arcane tax and legal questions. An experienced corporate finance adviser can help you avoid the pitfalls, and the value they can add far exceeds their fees. For example,
• What’s normal? Because they negotiate a number of deals at a time, and complete many more transactions than most entrepreneurs, they are more likely to know what is normal for deals of this sort, and what is simply “off market” and should be unacceptable – however superficially reasonable it may seem when described by the other side!
• They act as a buffer between you and the other side. It’s easy to underestimate the importance of this, but it can be crucial. For example, it can be hard for you to play real hardball with the person who’ll be your boss when the deal is done. Do not underestimate the need for a buffer between shareholders to build consensus on the same side too!
• They can create a discreet competitive process, bringing on board two or three rival strategic bidders with equally valid reasons for acquiring the business and providing you with crucial additional bargaining power
• They show you’re serious, and saleable. Appointing experienced, credible advisers shows you’re serious about completing a transaction, rather than just testing the waters. Purchasers and investors will take comfort from the involvement of professionals with long-term reputations and credibility to protect. This in turn increases their willingness to spend time, effort and resource on a transaction, while telling them that they won’t get away with under-paying.
• Confidence. Finally, as you take this major step, having skilled and experienced advisers on-side gives you the confidence that you won’t sell yourself short, and that you’ve achieved the best deal possible.