How to choose an M&A advisor for your fintech startup

Say you’ve built a valuable fintech startup, and you have strategic buyers knocking at your door. One of them is interested in an acquisition, and the other wants exclusivity. Another buyer is looking at a potential partnership. So now, you’re deciding between a sale, acquisition, or a strategic deal. Mergers and acquisitions (M&A) can be high-stakes scenarios that involve complex decisions. In the fintech industry, you’ll face regulatory and data infrastructure challenges. These unique hurdles make it hard to nail valuation multiples. 

Working with an M&A advisor can significantly impact the outcome. In this article, we’ll explain what an M&A advisor handles, how to evaluate them, and how to select the best advisor for your startup based on your business’ stage of growth. 

An M&A advisor is a financial expert or firm that assists companies in buying, selling, or merging businesses. Their core responsibilities include determining a valuation of your company, managing the above processes, and attracting interested buyers and investors. They’ll also facilitate the process of negotiating terms to help you get the price and deal structure you want.

Investment banker vs. boutique advisor vs. independent advisor

There are three main types of M&A advisors to consider: 

• Investment bankers: Large investment banks offer broad reach and extensive resources, making them suitable for major public deals. 
• Boutique advisors: Boutique firms offer in-depth sector expertise and attention from senior-level staff for mid-market transactions.
• Independent advisors: Independent advisors may be ideal for small- to mid-market deals and startups that prefer a proactive approach from a firm that’s not affiliated with a large investment bank. 

When selecting an M&A advisor, consider going with one with fintech expertise. Look for an advisor who understands how your business model works and the fintech sector’s nuances and complex systems. Make sure they are well versed in fintech lending, payments, data, fraud, and software, as well as regulatory, data privacy, and compliance rules. 

If you choose a generalist advisor, they might underestimate risks, fail to optimize your positioning, overlook key buyers, and misunderstand crucial, industry-specific metrics. So, when it comes to choosing an M&A advisor for a fintech startup, founders may believe sector expertise is a “nice to have,” but, ultimately, it can have a direct impact on the outcome of your deal.

Knowing when to have an M&A advisor involved is vital, especially if you're running a startup that’s in the Series A to growth stages. Consider hiring an advisor when you’re interested in an acquisition and before receiving any official inbound offers. You don’t want to be caught off guard and react to an offer.

Also, if your company has reached a plateau or an inflection point, it could be a good time to find an advisor to help you determine your exit strategy. 

When you may not need an M&A advisor

If you’re in the very early exploratory stage of considering a merger or acquisition, you may not need an advisor just yet. Or if you’re conducting a small “acquihire” in which you’re buying a small startup to onboard a specialized team, you may not require an M&A advisor’s services. To get the best outcome, work with an advisor at the right time. Starting too early or too late can have cost implications. 

Whether you’re a CFO or the head of finance, consider these criteria when making a hiring decision for an M&A advisor.

1. Fintech-specific sector expertise

Since fintech deals are complex, it’s important to choose an M&A advisor with direct sector expertise. Find someone with a solid track record of successful transactions in your startup’s category. They should have a deep understanding of your business model, the competitive market, and key trends.

2. Deal experience and outcomes

Search for advisors who have closed relevant deals within your niche. For instance, experience with payments, lending, or infrastructure is beneficial. Ask them to share information about specific deals they’ve closed. Check that they have an extensive network of qualified buyers, both domestically and internationally, if needed.

3. Process quality

The advisor should have the skills to run a competitive, well-controlled M&A process and be able to navigate tense negotiations. They should also 

know when and how to use a proactive approach to attract more competition or a reactive,  opportunistic approach to target a specific buyer for a swift transaction. 

4. Incentives and fee structure

Verify how the advisor charges fees. It’s common practice to charge an upfront or monthly retainer fee. They may also charge a success fee (usually a percentage-based fee) after they close a deal, which serves as an extra incentive to deliver your desired outcome. 

5. Senior attention vs. delegation

Confirm who will actually run your deals. You may believe you’re getting a senior banker, when in reality, that person has delegated tasks to a junior team member. If the firm promises that you’ll be working with a senior advisor, check that they’ll actually have the bandwidth to take on your M&A process in a timely manner. 

6. Cultural fit and trust

How comfortable do you feel when you’re interacting with the advisor? Since you’ll be working closely in high-pressure situations, you’ll want to get a good vibe from them and trust them. They should communicate clearly and be proactive.

Every M&A advisor offers different strengths and industry expertise. Ask your candidates these top 10 questions to help you determine who’s the best fit for your startup: 

1. What fintech deals have you closed in the last 12 to 24 months? 
2. What similar deals have you led in fintech?
3. Who are the likely buyers for a company like ours, and why?
4. Can you share examples of the companies that you would invite to an M&A process? 
5. How would you position our business differently from our competitors? 
6. What valuation range would you expect? What comparables would you use? 
7. How do you run your process?
8. What does your typical timeline look like?
9. Who will be our day-to-day contact and execution team?
10. How do you handle situations when the offers fall through? 

Here are the frequent blunders that founders make when choosing an M&A advisor: 

• Choosing based on brand name alone: Finance executives may get stuck on big-name firms or advisors rather than focusing on the one that’s the best fit.
• Ignoring sector expertise: A generalist advisor may not understand the competitive landscape or potential buyer objections.
• Misunderstanding fee structures: A s a financial operator, you should understand that, depending on the size and type of deal, you may pay upfront fees, monthly retainers, or commissions.
• Overestimating advisor involvement: It’s important to understand the advisor's role up front, so  you’re on the same wavelength, even before you start working together.
• Not running a competitive selection process: During your search, take the time to research and interview a few contenders before selecting an M&A advisor who’s a good match for your startup’s needs. 

On the surface, it may look like an M&A advisor’s role is solely to improve the sale price of your business, but they can also affect the entire outcome. For instance, they can influence valuation multiples based on positioning and competition. An ideal advisor can shape the deal structure, including retention packages and the cash-to-equity ratio. Experienced M&A advisors can also help to speed up the process and seal the deal more quickly. 

Strategic buyers

Founders may wonder how to choose M&A advisors for strategic buyouts. One way an advisor can support the process is by identifying the most suitable strategic buyer for your company, such as a bank, a fintech company, or a large tech firm.

Strategic buyers usually seek operational alignment, such as horizontal expansion or vertical integration. These buyers may be looking for market share, innovative technology, or new capabilities. And they may be willing to pay top dollar if your product or service solves a critical problem or can help to speed up their plans.

Financial buyers

Financial buyers are typically private equity investors or growth equity firms. They’re focused on return on investment (ROI), so their priority will be to review your startup’s potential and ability to scale and grow. So, they’ll want to see that your company has steady, healthy cash flow. 

Financial buyers may use borrowed funds to finance a deal. Once they have achieved their intended financial gain, they may have an exit strategy in place. 

To attract potential buyers, financial executives need to maintain clean, well-structured financials. You should have accurate financial reporting, be audit-ready, and have clear revenue projections. 

Fintech startups with established billing systems and financial tools make it easier for an M&A advisor to defend their valuation, streamline due diligence, and identify potential buyers. As a result, robust financial systems will support the strategic and operational aspects of mergers and acquisitions.

Selecting an M&A advisor is one of the most important decisions you’ll make for your company. The right advisor can help you boost your valuation, expand the network of buyers, and safeguard you from costly mistakes. 

Take your time to research and evaluate your options. Remember, it’s better to prioritize an advisor’s sector expertise and alignment, rather than brand recognition. As your fintech company grows, be strategic when finding the right partners.

If you’re preparing for an exit or an acquisition, you can begin by organizing your financial data. With Mercury’s accounting tools, you can prepare financial reports to help you stand out to potential buyers.