WHY AN INDUSTRY SPECIALIST IS A BAD IDEA WHEN HIRING A M&A ADVISOR

December 29, 2023
WHY AN INDUSTRY SPECIALIST IS A BAD IDEA WHEN HIRING A M&A ADVISOR
It’s tempting to think that someone who only represents businesses within your industry is the best choice to support you during the exit process. However, here’s a secret, every business is as unique as a snowflake. You have grown and developed your company in likeness to your needs and process, so even within the industry, there is no other company that is exactly like yours.
While industry specialists claim to bring valuable expertise to the table, there are many reasons why an industry specialist as a mergers and acquisitions (M&A) advisor the best choice may not be. Here are some reasons to consider:
Conflict of Interest: This is the main reason this option is problematic. Industry specialists may have pre-existing relationships with key players in the industry, which could compromise their objectivity. This may lead to biased recommendations or potential conflicts of interest that could impact the overall M&A process. Think about this carefully. The industry specialists will send his new opportunity (your business) to a handful of buyers that have purchased from him many times before. These are Private Equity firms or strategic buyers that he has developed relationships with over the years. His goal is to do this quickly and with the least amount of work and time. The big benefit for him is that he hopes the PE firm or strategic will come to him when it comes time to sell.
Limited Perspective: Industry specialists could lead to a narrow perspective. They might be too focused on traditional approaches within their industry and may miss out on innovative solutions from other sectors. A full process encompasses many types of buyers and since you don’t know the minds of how other companies are attempting to expand, it makes sense to include buyers that are in related industries. For example, if you have an Executive Search company, it’s possible that a full service accounting firm may look to buy it and expand their services rather than build those services on their own. An industry specialist could miss that because it’s not the traditional buyer.
Limited Network: While industry specialists have strong networks within their specific sector, they may lack diverse connections outside their industry. M&A deals often benefit from a broad network that spans multiple sectors and geographies, allowing for a wider range of potential opportunities.
Overvaluing Industry Expertise: Relying solely on industry expertise may result in overvaluing the importance of industry-specific knowledge. Successful M&A deals require a range of skills, including financial analysis, negotiation, and legal expertise, which may not be fully covered by an industry specialist.
Lack of Innovative Solutions: M&A deals often benefit from fresh perspectives and innovative solutions. Industry specialists may be more inclined to rely on traditional strategies within their sector, potentially overlooking creative solutions that could be more effective.
In summary, while industry specialists claim valuable insights, it’s important to carefully consider the specific needs of the M&A transaction and whether a more diverse skill set and perspective might be beneficial. A well-rounded team of advisors with complementary expertise may be the most effective approach in most situations. Contact Touchstone Advisors for information about how we can help you with your business transition strategy.

Steven Pappas

PARTNER, M&A MI M&A ADVISOR

spappas@touchstoneadvisors.com

Direct Line: 860.669.2246(O)
                     860-575-4032 (M)