Five things to think about when selecting a Corporate Finance Adviser:

Like everything in business, there are “horses for courses”. The right adviser for one corporate finance transaction might not be the perfect fit for the next deal.

I have pitched for business (successfully and unsuccessfully) over many years. It is often clear that the business owners and management teams I am pitching to, don’t really know what criteria to apply. They are sometimes making their decisions on the basis of (possibly not very relevant) recommendations and/or score sheets that miss some of the things they really need to be looking for.?So as a little summer post, I thought I would share some of the things I think would-be vendors/acquirers/seekers of funding should be thinking about when they select their advisers.

1.??????Honesty

There is simply no point appointing an adviser who is not going to be honest about your business, the process and the likely outcome of negotiation points. There are advisers out there who behave a little like the cliched estate agent and tell you what you want to hear during the pitch, assuming that when push comes to shove you will do the deal on the table anyway. A good adviser will be (brutally) honest with you about the likely value of your business and the value detractors which will require management during the process. They are not telling you your “baby” is ugly, they are the ones who will manage those points and get you the best possible deal. Ultimately you need to trust them 100%.

2.??????Chemistry

A deal process frequently lasts many months and is hard work for everyone involved. It can also be very challenging as the “other side” identifies points in due diligence, asks for information you don’t have and generally tests the agreed deal value as hard as they can. They are not being unreasonable, this is how the process works. You strike a deal on the basis of assumptions and then due diligence tests those assumptions. All of this happens while management teams have to continue running the business normally, as well as seeking to conceal the fact of a deal (usually) from the wider business. Your adviser needs to be someone you feel able to download your emotions to and on. They need to understand when you genuinely need emotional support and you need to feel comfortable to share your feelings with them. There needs to be enough chemistry for them to care about you as individuals as well as about their prospective fee !

3.??????Understanding

Whoever you appoint to work on your deal needs to genuinely understand your business. They need to understand what aspects of the business are attractive to a potential buyer or investor and to be able to articulate those value drivers on your behalf. Conversely, they need to understand what aspects of the business are likely to detract from the attractiveness of your business and to be able to honestly present those aspects in a way that minimizes their impact on deal value. They need to understand enough about your market environment to position your business within it and to identify likely buyer pools. That doesn’t necessarily mean you need to appoint a deep sector expert, although that can accelerate understanding. Every business is different and it is as an individual business it will be evaluated by potential acquirers and investors. Generic valuation metrics can be misleading unless an adviser really takes the time to “learn” your business. The more time you spend explaining your business to a prospective adviser, the better and more reliable the pitch you will get back. In making this point I should also point out that understanding is individual not corporate. Just because someone can produce a deck of deals done by their organization or team, it does not mean that they themselves have that business understanding. This should be tested.

4.??????Experience

I cannot begin to tell you how much better an adviser I am now than I was 20 years ago ! As in most things, you learn Corporate Finance from doing it, not from books. Experience teaches you how to run a process with just the right amount of assertiveness to keep bidders in but get to the best answer, how to argue persuasively against the massed bands of due diligence accountants about deferred income, normalized working capital and whether a balance is part of the working capital calculation or is “debt-like”; all of which go directly to the final price a vendor gets in their pocket. Experience teaches you which points to concede and how to leverage those concessions to win other points that are more important to you. Experience teaches you when to risk a “Mexican stand off” and when not to. Fundamentally, experience makes you a better, calmer, more reliable adviser. ?

5.??????Integrity

Almost all corporate finance fees are linked to deal outcomes. On the one hand this aligns the adviser’s interest with their client’s, if the client doesn’t get a good result, then nor does the adviser. However, in a worst case scenario the success fee scenario can motivate an adviser to get a deal done, even if it isn’t in the best interests of their client. It is usually possible to get to a negotiated deal that works for buyer and seller, but sometimes the goalposts move so much during the course of a process that the only “good” advice is to walk away. During my career I have several times had to tell clients that “in good faith”, I couldn’t advise them to take the final deal on offer.?I have never regretted that advice (and nor have they). It is important to understand that your adviser has enough deal flow and enough capital behind them that if your deal falls away or needs to be delayed for a good reason, it will not cause them a problem. Integrity is closely linked to honesty but it also has a contextual impact which it is key for you to understand before appointing.

Once the appointment decision has been made and the adviser has started working, most engagement contracts are pretty robust and the lock-in is extensive. Choosing your adviser should be based on a mixture of research, proper briefing and chemistry. Getting it wrong can be an expensive mistake and one with a long tail.

Pages of credentials are great. We can all produce them. But pay attention to some of the “softer” aspects of the relationship to come, and you won’t go too far wrong.?