Guide
Conflicts to name before you appoint an M&A advisory firm
Updated
An M&A adviser's conflicts are not hidden; they are structural, and several of them are addressed directly in the statute the firm relies on. Naming them at engagement costs nothing. Discovering them at closing costs a great deal, because by then the incentive to keep quiet is shared.
Representing both sides
The exemption permits a broker to represent both buyer and seller only with clear written disclosure and consent. That is a low bar legally and a high one practically: a firm that regularly acts for buyers in your sector has a relationship inventory that is worth something to you and a loyalty question that is worth naming.
Ask how many of the last ten deals it advised the buyer on. The answer is not disqualifying either way. It tells you whose calls get returned.
Financing the buyer
The statute prohibits an exempt M&A broker from providing financing for the transaction, and restricts assisting in obtaining third-party financing to cases with proper compliance and disclosure.
The reason is obvious once stated: an adviser who arranges the buyer's debt has an interest in the buyer's ability to pay rather than in your price. Where a firm offers to introduce lenders, ask whether it is paid by them.
Forming the buyer group
The exemption does not cover a transaction where the buyer group was formed with the broker's assistance, nor one involving passive buyers. Both point at the same underlying concern: a broker assembling investors is doing something closer to a securities offering than to selling a business.
If your adviser proposes to bring together a group of investors to buy you, that is a moment to ask which registration it is operating under, because it has probably left the exemption behind.
Who manages the money afterwards
Where the adviser is also a registered investment adviser expecting to manage the proceeds, there are two conflicts, not one. The first is that the deal must close. The second is subtler and matters more: the form of consideration. Cash now is easier to manage than an earn-out, and the adviser's interest is not neutral between them.
Form ADV Part 2 on adviserinfo.sec.gov must set out conflicts of interest, so read it before the meeting rather than asking the question cold. FINRA Rule 2010 sets a general standard of commercial honor for members, but a general standard is a poor substitute for a specific answer in writing.