Tech Exit Series - Hiring a Corporate Finance/M&A Advisor

Orrick's Exit Series follows on from the successful Founder Series and offers monthly top tips for companies looking towards an exit. The Series is written by members of our market-leading London M&A and Private Equity team with contributions from other practice groups. Our global M&A team has advised on over 680 M&A deals since 2021 valued at $130 Billion. The second instalment in the Series guides companies through the process of appointing a corporate finance advisor.

If you are looking towards an exit, one of the first things to consider is whether to appoint a corporate finance advisor. Referred to variously as corporate finance advisors, M&A advisors, banks, brokers and financial advisors, they broadly cover the same thing—helping you achieve a transaction on the best terms possible.

In the first instalment of our exit series, we look at some key considerations to bear in mind when looking to appoint an advisor.

1. Choose an advisor who is used to doing transactions of a size similar to what you expect. 

There is no point hiring a bulge-bracket bank to advise on a $10 million sale—their minimum fee alone will wipe out a huge chunk of the consideration. Equally, an advisor who specialises in smaller transactions may not have the resources to advise on a billion-dollar transaction.

2. Look at advisors who have experience in your sector. 

These advisors will understand your business, be better-positioned to advise on valuation and will likely have relationships with potential buyers. 

3. Choose someone you are happy to have represent your business and with whom you feel you can have a good relationship. 

You will need to trust your advisor to negotiate on your behalf.

4. Corporate finance advisors should give you a view on the value of your business and negotiate with potential bidders. 

Consider whether you also want the advisor to lead on preparing a memo to send to interested parties, run a formal auction process, organise the data room and/or prepare the allocation spreadsheet setting out how the sale proceeds will be distributed.

5. Determine if the advisor will offer management advice. 

If you are considering a private equity transaction, will the advisor offer guidance on terms of the management rollover or only on the sale element?

This is an important consideration where you have investors who are achieving a full cash exit on the transaction; their interests may not align with management team members who are rolling over a significant portion of their interest. 

You may want to consider engaging a specialist advisor to cover the management piece alongside an advisor on the M&A element.

6. Consider a few key issues when negotiating fee arrangements with advisors.

• The fee is generally only payable on completion of a successful transaction and is usually expressed as a percentage of the overall transaction value. In many cases it is based on a 'ratchet,' whereby if the advisor achieves a valuation significantly over target, they are paid a higher percentage of the proceeds. This can be a great way to incentivise an advisor as long as the levels of the ratchet are carefully considered to ensure that interests align.
• Consider what will happen if the transaction consideration is payable on a conditional or deferred basis (such as via an earnout ). Many advisors will defer the portion of the fee which relates to a portion of the consideration until it is ascertained and paid.
• Some advisors may also ask for a monthly retainer during the engagement. We would usually expect these amounts to be deducted from the final fee paid on closing.

Our London M&A and Private Equity team are well-equipped to recommend suitable corporate finance advisors and to help negotiate the terms of their engagement. If you would like to discuss your exit process, please contact James Connor, Katie Cotton and Dan Wayte.