Most business owners and many business advisors are unaware of the differences that separate a business broker from a merger and acquisition advisor (M&A advisor). It is vital to retain the right type of firm for the sale of any business.
How many owners of a shopping center, industrial warehouse or office building would hire a residential realtor to sell their property? Conversely, how many homeowners hire a commercial real estate firm to sell their home? In the realm of real estate sales, most people understand that there are distinct differences between residential and commercial real estate firms in terms of expertise, type of buyers and the marketing process each employ.
The same applies to the differences between a business broker and a M&A advisor. It is critical to understand how they differ.
The Key Differences
Business Brokers typically:
- Represent main street and upper main street businesses valued well below $2 million, such as dry cleaners, restaurants, beauty salons or franchises
- Market businesses mostly via businesses-for-sale websites, doing little buyer research and almost no direct prospecting to select buyer candidates
- Sell companies mainly to private individuals who will typically run it themselves
- Do not charge a fee up front but must maintain quite a few simultaneous listings to be profitable
- Have a background in real estate or general business, with limited knowledge of the finance, accounting, tax and legal issues that impact the transaction
- Work alone, even if the broker works for a larger organization
- Spend far less time per deal than an M&A professional, primarily because they cannot afford to, given the smaller size (and fee) of each deal
M&A Advisors typically:
- Represent owners of businesses valued in excess of $2 million, including manufacturers, distributors or service businesses
- Market businesses mainly to other businesses, usually by creating a thorough “package” with analysis and write-up, targeting interested buyers
- Sell companies to other businesses and/or private equity groups with a separation of owners and management
- Charge a retainer or consulting fee up front but have far fewer engagements than business brokers and spend considerably more time on each deal
- Usually have degrees in business, finance or law, and often an MBA or law degree with prior experience in banking or private equity before becoming an M&A advisor
- Usually work as a team
- Do up-front researching of the industry, packaging the business and preparing it for sale, proactively contacting and working with buyers, and managing the deal through closing
The Bottom Line
If you own a business and wish to sell, you certainly want the best possible representation. Consider the cost benefit. Of course, an M&A firm will charge a fee for selling your business. The good news is the better M&A firms will increase the price you receive far above the fee charged while allowing you to do what you do best.
M&A firms focus on the synergistic and strategic opportunities that your business would have to others and expect to receive a premium over its “financial value”. Bottom line: if your business is valued north of $2 million and is likely to be sold to a company rather than to an individual, you want a firm that focuses exclusively on larger deals. You will only sell your business once; give yourself the best chance of finding the right buyer and maximizing the price.