Promontory Perspective – Building an Experienced Advisory Team to Guide Strategic Growth and M&A

This is part 3 of a five-part series discussing the critical steps a privately held company needs to take to succeed with a strategic M&A initiative. For additional articles and videos, please visit https://promstrategy.com/psg-news/ and https://www.youtube.com/@riegginsights)

Once a privately held or family-owned company knows why it wants to make an acquisition and what type of target it is looking for, the process becomes more demanding. Potential targets need to be approached, financial information reviewed, financing options considered, terms negotiated, and due diligence can uncover questions that require legal, tax, operational, or financial expertise.

An experienced acquisition advisory team gives ownership and leadership access to people who have handled those issues before. The goal is not to surround the buyer with unnecessary advisors. It is to have the right professionals involved at the right points so management can make informed decisions while continuing to run the existing business.

Step 3: Who Should Be on an Acquisition Advisory Team?

The first two steps in a disciplined acquisition process establish the “why” and the “what.” Ownership determines what it wants the acquisition to accomplish, then develops criteria for the type of company that could support those goals. Step 3 focuses on the people who will help carry that plan through a transaction.

Most privately held companies do not buy businesses frequently enough to maintain every needed transaction specialty in-house. Even an experienced leadership group may have limited exposure to target outreach, valuation, deal structure, legal diligence, financing, tax issues, and post-closing planning.

A strong M&A advisory team brings those disciplines together. Depending on the transaction, that may include a lead transaction advisor or investment banker, legal counsel, a CPA or accounting advisor, lenders, and a wealth advisor. Each views the opportunity through a different lens, and each can identify questions that may be easy to miss when leadership focuses primarily on the target’s strategic appeal.

The Lead Transaction Advisor Keeps the Process Moving

For many buyers, the lead transaction advisor becomes the central point of coordination throughout the acquisition. This role extends well beyond finding a company that may be willing to sell.

Experienced business acquisition advisors can help ownership assess and prioritize strategic options, refine the acquisition plan, and identify companies that fit the established criteria. Once targets have been identified, the advisor may lead outreach and complete preliminary analysis before the buyer invests significant time in a particular opportunity.

Promontory Strategy Group can serve in this lead advisory role, working with company leadership from early acquisition planning through target outreach, negotiation, due diligence, and closing. PSG also works with the other professionals involved in the transaction so ownership can consider legal, financial, tax, financing, and shareholder issues as the process moves forward.

As discussions progress, the work becomes more transaction-specific. The advisor may:

• Lead outreach to potential acquisition targets
• Review preliminary financial and business information
• Prepare an initial bid letter or indication of interest
• Coordinate discussions between the buyer and target
• Help negotiate the letter of intent
• Coordinate diligence among the buyer and outside advisors
• Help manage the process through closing

That coordination can be especially important for an owner or executive who still has a company to run. Acquisition discussions rarely replace the buyer’s existing responsibilities. They are added on top of them, while customers, employees, and the existing operation still require attention.

A lead advisor also helps keep the original strategy visible as the deal develops. When negotiations become more detailed, it can be easy to focus on winning a particular target rather than asking whether the opportunity still supports the objectives that started the search.

Legal Counsel Helps Turn Business Terms Into a Workable Agreement

An acquisition can move quickly from a business discussion into a legal one. Counsel with meaningful M&A experience can help the buyer understand what it is agreeing to and where additional protections or clarification may be needed. Legal counsel may assist with drafting and reviewing the letter of intent, leading legal due diligence, and preparing or negotiating the purchase agreement and related documents.

This work often involves much more than standard contract language. Counsel may review corporate records, contracts, employment matters, intellectual property, regulatory requirements, litigation, and other potential liabilities associated with the target.

The attorney should also understand the business rationale behind the transaction. Legal protections are important, but the strongest advice usually comes when counsel understands which issues are central to the buyer’s investment thesis and which risks ownership is prepared to accept.

Accounting Advisors Look Beneath the Reported Numbers

Financial statements provide an important starting point, but they do not always tell a buyer everything it needs to know about the target’s economics. An accounting advisor can provide another view of the numbers before the buyer makes decisions based on reported performance alone.

A CPA or transaction accounting advisor can help evaluate stock purchase versus asset purchase considerations, tax implications, working capital, and other financial issues that affect the structure and value of a transaction.

Depending on the size and complexity of the deal, the accounting advisor may also perform or coordinate a quality-of-earnings review. This work can help the buyer understand how reliably reported earnings reflect the company’s ongoing performance and identify unusual, nonrecurring, or owner-specific items that may affect the numbers.

Tax diligence is another important part of the process. Historical tax matters, transaction structure, and post-closing tax considerations can all change a deal’s economics. Addressing those issues before closing gives ownership a better understanding of what it is actually buying.

Lenders Help Test Whether the Financing Works in Practice

The question is not simply whether financing is available. Ownership also needs to understand how different financing structures could affect cash flow, leverage, flexibility, and the company after closing.

Lenders can model different acquisition financing options and help the buyer understand how much debt the combined company may reasonably support. They may provide financing for the initial purchase price as well as working capital for the larger organization after the transaction.

Their perspective can also uncover practical concerns in a proposed deal. Customer concentration, environmental exposure, industry volatility, collateral, or an aggressive purchase price may affect how a lender views the transaction’s risk. Those discussions are more useful when they occur early enough to influence the deal structure, rather than after the buyer and seller have already agreed to terms that are difficult to finance.

A Wealth Advisor Keeps the Shareholders’ Larger Goals in View

For a family-owned or closely held company, the acquisition does not exist separately from the shareholders’ financial lives. Decisions made within the transaction can have consequences for the owners well beyond the purchase itself.

A wealth advisor can work with ownership and leadership to clarify short- and long-term goals and consider how a transaction may affect personal liquidity, insurance needs, estate planning, taxes, and other financial priorities.

This becomes especially relevant when an acquisition requires shareholders to contribute additional capital, guarantee debt, change distributions, or keep more wealth concentrated in the company.

The wealth advisor may also coordinate with tax, estate, and other professionals so the transaction is evaluated within the owners’ broader financial picture. This is an important part of family business acquisition planning, particularly when several generations or multiple family shareholders are involved.

The Advisors Need to Work Together, Not in Separate Lanes

Having experienced professionals involved is only part of the equation. They also need to communicate because a decision made in one area of the transaction can quickly affect several others.

A change to purchase price can affect financing. A legal diligence finding may influence valuation or insurance requirements. A tax issue can alter the preferred deal structure. A quality-of-earnings finding may change the buyer’s view of sustainable EBITDA and, in turn, the amount it is willing to pay.

If those discussions happen in isolation, ownership can end up receiving advice that is technically sound within one discipline but does not account for the rest of the transaction. The buyer then has to piece together several separate recommendations while also trying to determine how one decision affects another.

Good transaction advisory services bring those perspectives together. Promontory Strategy Group works alongside a buyer’s legal, accounting, lending, tax, and wealth advisors, helping coordinate the process so those considerations can be addressed as connected parts of the same decision.

That coordination also gives leadership a clearer picture of what still needs attention before moving forward. Instead of sorting through several separate workstreams, ownership can understand how the findings fit together and where the largest remaining questions lie.

In this Riegg Insights video on building an experienced advisory team, Chris Riegg discusses Step 3 of the acquisition process and why privately held companies benefit from having experienced advisors involved throughout a transaction.

The Right Acquisition Advisory Team Adds Experience Where It Matters

An acquisition advisory team cannot remove every uncertainty from buying a business, and that should not be the expectation. Its value comes from bringing transaction experience to decisions that a privately held or family-owned company may only face a handful of times.

When the right advisors are involved, ownership has experienced resources for target outreach, negotiation, financing, M&A due diligence, legal documentation, accounting analysis, and personal financial planning. Just as importantly, those advisors can help leadership keep the transaction connected to the goals that started the acquisition process in the first place.

Promontory Strategy Group works alongside privately held and family-owned companies and their legal, lending, tax, accounting, and wealth advisors throughout the acquisition process. Contact Promontory Strategy Group to discuss the advisory resources your company may need as it evaluates and pursues acquisition opportunities.