I will admit we are biased, but the reality is It’s one of the highest return decisions a seller can make.
When considering the sale of a business, one of the most frequent questions owners ask is whether hiring a sell-side M&A advisor is really worth the fees they charge?
There are three key areas where advisors create substantial value which we discuss along with an example of a R100m valuation business.
1. Probability of Successfully Closing a Transaction
One of the most overlooked realities in M&A is how difficult it is to actually sell a business.
Market survey data suggests 80-90% of businesses listed for sale never transact. When owners attempt to sell their businesses themselves, deals typically close only 10-30% of the time.
By contrast, when a professional M&A advisor is involved, transactions close 40-70% of the time representing a ~35% increased probability of success.
A key reason for this difference is that only about 20% of the effort in an M&A process is finding the buyer. The remaining 80% relates to managing the process in a professional and consistent manner, running a structured transaction, coordinating advisors, managing information flow, and guiding negotiations.
In owner-led sales there is often a tendency to overprice the business, market it poorly, prepare inadequate financial information, or make negotiation mistakes, all of which reduce the probability of closing a deal.
While this is difficult to measure precisely, a roughly 35% increase in probability of success can translate into a R35m probability-adjusted return on a R100m transaction.
2. Achieving a Higher Sale Price
Industry research also suggests that businesses sold through professional advisors tend to achieve higher sale prices.
Advisor-led transactions typically achieve 6-25% higher sale prices, with the average premium falling in the 10-15% range.
This premium is usually driven by several factors:
- Running a competitive bidding process
- Accessing a larger universe of potential buyers
- Professional positioning of the company and its financials
- Presenting normalized EBITDA and a clear growth narrative
- Experienced negotiation
In our R100m example, this translates into roughly R12.5m of additional value.
3. The Time Cost of Selling a Business
Selling a business is extremely time intensive.
Industry estimates suggest that completing a transaction requires at least 1,000 hours of work on average.
While an advisor cannot remove the owner from the process completely, they can typically reduce the owner’s involvement by around 70%, bringing the time commitment down to roughly 300 hours of owners time.
Assuming an owner’s time is worth R5,000 per hour, saving 700 hours equates to roughly R3.5m in time value alone.
More importantly, time spent on the sale process often comes at the expense of running the business.
A well-managed advisor-led process typically takes 9-12 months, while owner-led sales often stretch to 12-18 months or longer.
During that time, owners may spend 20-30 hours per week focused on the transaction rather than company operations. If performance declines even 10% during this time, buyers may question the sustainability of earnings, lowering the valuation base and potentially applying a lower valuation multiple to account for the negative trend and future uncertainty it creates.
On a R100m transaction, this combination of lower performance base and reduced transaction multiple could reduce value by R15m or more.
Using an advisor allows the owner to stay focused on running the business, which ultimately protects value during the sale process.
The Bottom Line
When evaluating whether to hire a sell-side advisor, the question should not simply be “what does the advisor cost?”
The real question is what value they create and what value do they protect across the transaction.
When you consider:
- Higher probability of closing
- Potential sale price premiums
- Significant time savings
- Avoided business performance decline
the value created by a structured, professionally managed process far exceeds the cost of hiring an advisor.
In our R100m example, these factors alone can create ~R31m of value against advisor fees of roughly R6m (of which only about R400k is typically at risk in the form of retainers, with the rest contingent on success).
Importantly, this analysis does not even take into account potential savings in professional fees that form part of the transaction (Legal, Tax etc), which can often be reduced by R100s of thousands by having an experienced M&A profesional guiding the process.
This implies a potential ~63x return on the at-risk capital (Retainers), or an approximate one-year IRR of ~6300%, making it one of the most compelling investments a seller can make in protecting the value of their business.
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