by Steve Whitteberry, Managing Director
While working for a Big Four public accounting firm in Chicago, we worked on the audit of a client who was referred to as “Penny Wise and Pound Foolish.” Although the company maintained sales in excess of $100 million, the owner would go to great lengths to save a few cents by recycling paper clips, printing on both sides of a sheet of paper, or having others pick up the tab at lunch. Year after year we would recommend hundreds of thousands of dollars in operating improvements. The owner could not overcome the investment required for an outside advisor to implement the improvements, even though the expense would quickly pay for itself in operational savings and efficiencies.
This same attitude can exist among owners and shareholders when contemplating the sale of their business. Some would rather “go it alone” than utilize the services of a professional advisor.
An interesting study by Mercer Capital found that owners represented by a professional advisor are more likely to receive a higher sale price than selling alone. The study concluded that the companies who sold with the assistance of a professional advisor received a substantially higher price to earnings multiple.
A real-world example: Let’s assume your business has an EBITDA of $5 million and equity of $20 million. Based on the empirical evidence from the Mercer Capital study, your Company’s net proceeds would increase by $3 to $4 million dollars, even after deducting the professional advisor’s
estimated fee.
To further emphasize the importance, I recently had an interesting conversation with an upper level manager of a midwest-based private equity group. He had completed several transactions with companies represented by a professional advisor, as well as transactions where the owners represented
themselves. The manager explained to me that he preferred to purchase businesses with the business owner directly because he felt he could negotiate a better price for himself rather than negotiating through a professional advisor.
Moral of the story: Don’t save a few cents by going it alone. Instead, use an experienced professional advisor and maximize the return on investment received for your business.