Most small business owners are skilled at running their business but do not have the background that is conducive to successfully negotiating a transaction involving their business. Lacking negotiating skills may result in leaving money on the table in the transaction. As this is not an optimal outcome for the business owner, it is wise to have an experienced, professional business broker/transaction advisor to negotiate for them to maximize the transaction terms.
Mercer Capital recently completed a study relating to the role of transaction advisors in securing higher deal terms than transactions that did not include a professional transaction advisor. The study involved examination of transactions in the banking industry beginning in 2001. (The banking industry was selected given the availability of financial information relating to banks as well as transaction information. Given the federal regulation of the banking industry, more financial and transaction information is readily available than in other industries.) Mercer Capital’s study indicated that those sellers who retained a transaction advisor received a 20% higher price to earnings multiple and a 15% higher price to tangible book value multiple than those sellers who did not retain a transaction advisor.
Clearly, retaining professional transaction advisors can help business owners achieve maximum return on the transaction as compared to the “for sale by owner approach.” Negotiating transaction value and terms is no easy task, particularly when the emotions of the owners may be involved directly in the negotiating process. A transaction advisor removes the emotions on both sides of the deal-making process and works to achieve optimal results for the willing buyer and willing seller.