The Difference Between Business Brokers, M&A Advisors, and Investment Bankers
When selling your business, you need a knowledgeable, expert advisor. You only get one chance to sell, so the wrong advisor could cost a part of your retirement. These intermediaries are often called mergers and acquisitions (M&A) advisors, business brokers, or investment bankers.
All business sales advisors have a common goal: managing the sale process by evaluating and marketing your business, negotiating the deal, and ensuring the transaction closes. The approach varies with the size of the business and the type of expert retained. Because each type of advisor specializes in a specific portion of market, you should seek an intermediary who fits the needs of your business.
Business Brokers typically work with companies that have under $10 million in annual revenues. These “main street” businesses are often local service providers, such as restaurants, convenience stores, dry cleaners, and other small businesses in which the owner will likely become the owner-operator.
These projects typically yield lower fees, so brokers often handle numerous engagements—often as many as 10 sales at a time. For this reason, they can only offer limited attention, and their marketing strategy may be limited to posting the listing on various sites. Their expertise varies, and may be limited, since the fees earned in this position are often lower. Even some commercial real estate agents sometimes offer business brokerage services.
M&A intermediaries or advisors work with business owners with revenues between $10 million and $100 million. These professionals know how to attract private equity firms and strategic buyers, as well as individuals of high net worth. They are familiar with a range of financing options to facilitate complex capital structures.
M&A advisors limit themselves to one to two engagements at a given time. This enables them to offer in-depth analysis and marketing advice, and to spend significant time with each client.
Larger deals are often complex, so M&A intermediaries often work with a team of advisors, including accountants, financial analysts, and attorneys. This deal team works together to ensure a successful sale. M&A advisors typically charge a retainer fee to compensate themselves for the massive work involved in evaluating the business and marketing it. However, the best advisors collect the bulk of their fees following a successful sale. This fee usually follows a scaled percentage formula.
Investment bankers serve clients in mid to upper-level markets, working with owners of public and private businesses with annual revenues in excess of $100 million. These firms network with businesses and private equity groups seeking to acquire larger companies. Though knowledgeable, they often can’t tap a network of buyers seeking to acquire smaller entities.
Investment bankers offer strategic M&A advice, in addition to helping clients raise debt and equity capital, refinance, and recapitalize. Their fees vary and are negotiable.
The right intermediary is a key player in a business sale. It’s important to interview several before retaining an intermediary. An experienced broker who sells ice cream shops might have no idea how to handle a manufacturing, construction, or distribution business. The right intermediary has experience in your industry, and is a good fit for your unique needs.