M&A (merger and acquisition) advisors play a critical role in facilitating transactions between buyers and sellers. However, conflicts of interests can arise in this process due to the nature of their role. Here are some common types of conflicts of interests that can arise with an M&A advisor:
1. Dual representation: If the M&A advisor represents both buyers and sellers, there is a potential conflict of interest. In such cases, the advisor may not be able to provide impartial advice or negotiate the best possible deal for either party. Often M&A advisors representing sellers do special projects for firms in their panel of buyers, and in turn subtly direct sellers to these buyers as a quid pro quo for this work.
2. Undisclosed fees: M&A advisors may receive fees or compensation from both the buyer and the seller. If these fees are not disclosed, there is a potential conflict of interest, and the advisor may prioritize their own financial interests over those of their clients.
3. Prioritizing speed over value: M&A advisors may have an incentive to close a deal quickly, even if that fast pace is not in the best interest of their client. This can occur if the advisor’s fees are tied to the completion of the deal or if they have other clients waiting in the pipeline they need to get to. Employees of large M&A firms may feel the need to “manage up” and get deals done quickly.
4. Investments in PE Backed Firms: Some M&A advisors that have may have investments in buyers, and be incentivized to direct deals to these buyers.
To avoid conflicts of interest, M&A advisors should be transparent about their fees, disclose any potential conflicts, and prioritize their clients’ best interests over their own. Clients should also do their due diligence when selecting an advisor and ensure that they have a clear understanding of the advisor’s role and potential conflicts of interest.
Ideally, a seller’s advisor makes a clear statement of being a fiduciary to the seller in their process.