No Spin Zone: Let the buyer pay the fees?
Letting the buyer pay the fees sounds like a terrific idea. Everyone hates fees so just let someone else pay them. And since it sounds like a winning idea, M&A advisors try to sell it. Many of the inquires that owners receive from M&A advisors or brokers will say something along the lines of:
“We are partnering with a business that wants to buy your company. You get a fantastic deal, because they are paying our advisor (or broker) fees, so you don’t have to!”
Like most good sales pitches, it sounds amazing at first but let’s pause and put this door opening phrase in the “no spin zone” to see what’s really being said. First off, let’s look at the context of this approach within the typical M&A marketplace versus the current HVAC acquisitions marketplace.
Traditional Buyer Services
In the broader marketplace, it is common for a company to hire an advisor for M&A services that support every step in the business acquisitions process. Most advisors call it buy-side or buyer services. The advisor helps a buyer to:
Formulate their acquisitions strategy
Understand market valuations
Develop a target company list
Perform outreach to those companies
Qualify the targets
Negotiate an agreement
Complete due diligence
The buyer gets significant value out of this service as the advisor is providing expertise along every step in the M&A process. Typically, a buyer using these services doesn’t have their own in-house acquisitions team and isn’t affiliated with a private equity firm.
Buyer Services in HVAC Consolidation
In contrast, buyer services in the current HVAC marketplace typically don’t cover a full range of M&A process steps. They are simply a way that buyers outsource the outreach and qualification steps. Essentially, the sales work.
As you may know, the HVAC marketplace is currently going through a wave of consolidation and the buyers are quite sophisticated. Most buyers are funded by private equity and making acquisitions is a core competency of private equity firms. Almost all of these buyers have already bought a handful of HVAC companies or even hundreds of companies across a variety of different industries. Given that these buyers already know the ins and outs of acquisitions, hiring an advisor for all the support provided by traditional buyer services doesn’t make sense. Today’s HVAC buyers need help with primarily one thing: identifying HVAC businesses to buy.
As with any business, lead generation is the fuel for growth and private equity firms don’t typically employ salespeople. So their go-to play is to hire an advisory firm to do the cold calling, emailing, and networking for them.
Entering the No Spin Zone
As with almost any salesperson, these M&A advisors tend to add their own spin to get their foot in the door and their classic door opener is “the buyer pays my fees!” Understanding the background on these services, we can enter the “no-spin zone” to decipher that what is really being said is:
“Hello, I’m a salesperson and you don’t have to pay my commission if you sell your company to my buyer client.”
So there you have it; that’s essentially what these advisors are saying. When you decode the sales pitch, you find it isn’t quite the great savings deal after all. Now you can assess the statement for what it is: sales spin from a buyer’s advisor to try to capture your attention.