What Red Flags Should You Watch for in M&A Advisors?

Some warning signs are subtle. Others are neon. Watch for both.

Valuation red flags

• Aggressive valuation promises with no comps to back them up
• Refusal to discuss a realistic range on the low end
• Claims that they've 'never had a deal come in below LOI'

Fee red flags

• Vague or shifting explanations of the fee structure
• No cap on out-of-pocket expenses
• Long tail periods (24+ months) after engagement termination
• Fee structures that reward closing any deal, not the right deal

Process red flags

• No defined process, or a process that varies wildly by engagement
• Refusal to name buyers they'd approach
• Small buyer universes (under 20 for most deals)
• Pressure to sign the engagement letter this week

Team red flags

• The person selling the engagement won't be the one running the deal
• No named day-to-day contact
• Too many active engagements for the size of the team
• No verifiable closed transactions in your size range in the last two years

The gut check

If you leave the first meeting feeling more confused than clear, that's a signal. A good advisor makes complex things simple. If they can't, they probably don't understand it themselves.