Ask the advisor what happens when the deal becomes difficult

An owner considering retirement meets an M&A advisor. The advisor understands the business, offers an encouraging view of value and describes a large network of buyers. The meeting feels productive.

There is another conversation worth having before signing an engagement: what will happen when the buyer disputes the earnings, the timetable slips or the owner becomes unsure about selling?

Those moments reveal the working relationship the family is actually choosing. A persuasive pitch may tell the owner little about who will investigate a problem, explain the options and help them make a difficult decision.

Give the advisor a problem to work through

Use a hypothetical situation: the buyer has reduced its offer after rejecting an adjustment to the company’s earnings. The owner believes the original adjustment was reasonable and wants to know whether to accept less or end discussions.

Ask how the advisor would respond. Who reviews the records? Who works with the accountant? Who speaks to the buyer? What would the owner receive before being asked to decide?

Useful answers might identify an earnings reconciliation, supporting documents, an assessment of the buyer’s reasoning and realistic alternatives. These are proposed work products, not guarantees of a successful negotiation.

Ask who would prepare them. The senior person presenting the pitch may remain closely involved, or the daily work may be handled by another team. Either arrangement can work if responsibilities, access and supervision are clear. The owner should know the people expected to do the work, not just the person who secured the meeting.

Then change the scenario: what if the owner decides the reduced offer no longer supports retirement? Listen to how the advisor discusses stopping, continuing or adjusting the plan. The answer should recognize the owner’s objectives and the actual contractual commitments.

Compare scope before comparing fees

BDC describes an acquisition process spanning preparation, negotiations, diligence, financing and integration. My recommendation is to use the relevant stages to test the proposed engagement: which responsibilities does this advisor accept, and which remain elsewhere?

For a seller, preparation of materials, financial analysis, buyer research, negotiation and work after the initial offer can be delivered in different ways. A broadly worded promise to manage the sale should be translated into specific responsibilities.

An advisor should also identify the limits of the role. Transaction counsel, tax advice, accounting work and technical diligence may require other professionals. No one should imply that an advisory engagement replaces every specialist the deal needs.

The engagement letter deserves careful review with counsel. Understand the fee calculation, expenses, exclusivity, termination and any continuing entitlement to fees after the engagement ends. Ask how the arrangement treats deferred consideration, an earnout, retained equity or a sale to a buyer already known to the owner.

Ask the advisor to calculate the fee on one illustrative offer containing both closing cash and later payments. That example can reveal a misunderstanding about timing or the fee base before either becomes an actual dispute.

The point is not that one fee arrangement is always better. It is that a family should understand what triggers payment and what work is included before those terms become relevant during a stressful decision.

Ask for evidence that resembles your situation

A total transaction value can be impressive without answering the owner’s questions. Which party did the advisor represent? Who performed the work? How much of that experience resembles the size, complexity and ownership situation of this company?

A $2 million business and a $100 million business may require different resources and processes. The advisor should explain why the proposed approach fits this assignment. Bigger credentials do not remove the need for that explanation.

Where permitted, speak with a relevant former client. Ask about communication when problems arose, the quality of explanations and the work between the initial offer and completion. A transaction that did not proceed can also offer useful perspective if the client is willing to discuss it.

Respect confidentiality. An advisor may be unable to name a client or disclose deal terms. That should lead to an appropriate alternative way of evaluating experience, not pressure to reveal protected information.

Ask how relationships with potential buyers and other conflicts are identified and disclosed. The commercial arrangement should be explained plainly enough for the owner to assess it.

Agree how the family will stay informed

Choose the person authorized to give instructions and decide which family members or other advisors need information. Unclear decision authority can create conflicting messages even when everyone wants the same outcome.

Establish who calls when a material issue arises, how routine progress is reported and who covers an absence. The owner needs enough information to decide without becoming the coordinator of every request and meeting.

These are questions owners should put to us at BSC as well. They are reasonable questions about the service being proposed, not an accusation that something will go wrong.

One tell is worth naming. An advisor who gives you a valuation before seeing your records is selling you the meeting. A number produced that quickly is a marketing figure, and it costs the owner twice: once when it sets an expectation the market will not meet, and again when the same advisor has to walk it back after diligence. I would rather lose a mandate for being less exciting in the first conversation than manage an owner down from a number I invented to win it.

Return to the difficult hypothetical at the end of the discussion. Can you picture who contacts you, what evidence they bring and how the choice reaches you? If the answer remains vague, ask for a clearer explanation before appointing the advisor. The relationship needs to make sense on a difficult Wednesday, not only during the first presentation.