by Scott Bushkie, CBI, M&AMI
M&A industry studies show the closing ratio for Main Street companies is anywhere from 15 to 25 percent. For businesses in the lower middle market, it’s around 35 percent, depending on the size of the deal.
But when the International Business Brokers Association (IBBA) and M&A Source asked members to report their closing numbers, it got a much different story. In 2012, members reported a total closing rate for Main Street (up to $2 million) and lower middle market ($2-$50 million) combined at a healthy 64 percent.
I have to assume that Main Street numbers (if they followed national trends at all) were pulling down the average, making that 64 percent even more remarkable. Here at Cornerstone, where most of our clients are in the lower middle market, we track our closing rate around 71 percent.
I want to talk a bit about why I think IBBA and M&A Source members got these numbers. But before you wonder why I’m droning on about the IBBA, let me say that there are lessons to be learned here about A) what to look for when you’re hiring any professional advisor, and B) how to excel in your chosen career.
Industry associations, like IBBA and M&A Source, provide first rate continuing education and best practice information. People who are active in their industry groups get exposure to new ideas and trends they can’t get just from working their businesses day in and day out. For example, what if you needed surgery on your heart. Would you use someone who has the latest training, tools and resources or would you feel comfortable with a doctor who is using the same procedures and technology from his residency 20 years ago?
I’m a big believer in attending national conferences too. While Cornerstone is active in regional and state M&A associations, I think you get even more out of a national event. Most have a culture where members openly share their “secret sauce,” because they don’t compete with you on an everyday basis.
I believe the IBBA closing ratio was significantly higher than national trends because the survey only included professionals who had committed to further education and networking as part of their industry association.
But if I dig deeper into the numbers, I see that many respondents have even more going for them. For instance, 55 percent have worked in the industry for 10-plus years—experience counts.
What’s more, 53 percent have taken multiple classes and passed the rigorous exams necessary to obtain their Certified Business Intermediary accreditation. And 13 percent have achieved M&A Master Intermediary designation, a combination of classes, testing, and real world success.
This should show business owners, that when it comes to mergers and acquisitions, there’s definitely an advantage in working with someone who continues to improve himself or herself and gain new knowledge. In the M&A world, this kind of commitment gives clients a much higher chance of successfully selling their company.
I have to believe it creates better results in other industries as well.