Sell-side advisory

What exactly is the role of an M&A adviser on a buy-side mandate?

First, a hunting dog, when sourcing is part of the mandate: finding and approaching the targets that match the client's search criteria in terms of activity, size and location. This search phase is time-consuming and thankless: sending dozens of letters, then follow-ups, with no certainty of the outcome.

Then a watchdog: once contact is established with one or more potential targets, it must make sure that all the information needed to make an offer is obtained, and above all that the target genuinely matches the original brief. Because a buyer can get carried away and, swept up by enthusiasm, impatience or both, become infatuated with a target that does not fit! Whether they are a trade operator (seeking a build-up), an investor or an individual buyer.

I experienced this in Nantes with a buyer, a senior executive of a group, who was won over not by the target itself but by the fact that it was in his home town. I managed to talk him out of it (a good watchdog) and, three months later, we found the right target in Saint-Nazaire and completed the acquisition.

A third aspect, the financing: a watchdog once again, to ensure the financial structure does not carry too much debt, which in the event of future air pockets could become too heavy to repay.

Being a buy-side adviser therefore means being not only an effective hunting dog but also a vigilant, well-meaning watchdog who knows how to say "no" when danger is sensed, in order to protect the client. In any case, setting off in search of a build-up or a first acquisition is like heading into the high mountains: you are better off with a guide!

For the past three years I have been observing a new trend in the process of selling SMEs, which in my view is not progress.

1) The LOI becomes a legal document. For an SME sold for between €1 and €10M, the LOI used to be drafted by the buyer or their accountant in 5 to 6 pages, covering everything (see my recent post "the 5 must-haves of the LOI"). For the past three years, the new trend has been to hand the drafting to lawyers, and the LOI can run to 12 pages without being any more complete on the financials, because elements of the SPA end up in it.

2) Longer acquisition audits. For the size of SME mentioned above, acquisition audits used to be carried out by the buyer's accountant. The new trend is to hand them to transaction services firms (or auditors) and to run a full audit instead of a "red flag due diligence" aimed at spotting the main risks. Hence audits stretching from 3 or 4 weeks to two months and more.

3) The cash meeting disappears. The old school I belong to scheduled this meeting 48 hours before closing, held with the accountants of both seller and buyer, to check the level of cash to be left to the buyer at closing (agreed in the LOI) and to distribute any surplus as dividends. The new trend requires, at best, management accounts on the closing date (or at the end of the preceding month), at worst a full account closing on those dates. As these are only available several weeks later, the working capital (or part of it) is held in escrow in the meantime, which in practice means a two-stage closing.

4) The plenary meeting disappears. This involved reviewing the legal documentation (SPA, representations & warranties, etc.) together, in person or by video, with sellers and buyers and their legal and financial advisers. The new trend keeps everyone in silos: lawyers on one side, sellers and buyers on the other. You almost have to fight to hold a plenary that lets everyone speak and reach agreement, even if it takes 3 or 4 hours of discussion. Hence, once again, longer timelines.

Let us return to common sense and stop applying mid-cap practices to small and micro-cap deals, where they lengthen timelines and increase acquisition costs. No, the old school is not automatically outdated, and resisting new fashions is not the same as refusing progress.

I have just come back from a week in the mountains where I helped a long-standing sporty friend, whose legs are paralysed after a serious fall from a climbing wall, to ski on a mono-ski. That feeling of being useful, of discovering a sport in the morning and working remotely in the afternoon, did me a lot of good.

The same goes for retirement: at 68, I am one of the Young Old, defined by the Japanese and the Americans as people aged 65 to 75. When they are in good health, these YOLD increasingly stay professionally active.

At 68, fit and sharp (for as long as God allows), I have absolutely no wish to stop! With 5 closings completed over the past 12 months and the shots of adrenaline they bring, it is the perfect complement to an active, fulfilling retirement.

A sideline that does not stop me moving around, thanks to advances in technology and remote-working habits. Last June, for instance, I took with me to Taiwan the deal "forward-looking HR studies for nuclear power and the ecological transition", closed on 11 March, where the LOI was negotiated with the final buyer by video from Taipei.

The mix of physical activity (masters rowing competitions, as in Taiwan), intellectual and professional activity (SME sales with Acqmaster, electronic invoicing with Indicom) fully satisfies me and gives that sense of remaining useful by putting my experience and skills to work, while keeping them up to date.

So even if your retirement is still a long way off, think about the active forms it could take, without ruling out professional activity. It is anything but a punishment!