When you are about to sell a business, you have a few options regarding how to do it, and whose expertise to enlist. Many people confuse M&A advisors with business brokers. While there are some similarities, they are not one and the same. There is actually more than one significant difference between an M&A advisor and a business broker. It is important for any business owner to understand these differences, so that it can be determined which is the best way to go about the sale of a company.
Scale & Clientele
Business brokers usually operate on a smaller scale, often regional or local. The transactions they broker typically involve individual, autonomous businesses in smaller deals under $2 million, and some deals that transfer ownership to an employee. Examples of the types of businesses that brokers may work with are the ones you may find on a town’s Main Street, such as auto body shops, dry cleaners, restaurants, florists, and hair salons.
In contrast, M&A advisors typically work on a much larger scale, with larger companies in transactions that are national or global in scope, and even spanning multiple locations or countries. They serve as more of a deal partner, and handle complex mergers and acquisitions that are multi-million dollar deals.
Services & Valuation Methods
When it comes to valuating a company, M&A advisors and business brokers do things a little bit differently. Business brokers tend to deal with companies that are easier to assess. Their methodologies are more basic, often follow a template, and are limited to location, profits, and sales. Much of the work that goes into a sale falls on the shoulders of the seller, including the preparation of financial statements, due diligence, and creation of marketing materials. This all creates more liability for a seller following the transaction. Some brokers may provide more assistance with due diligence than others. Also, their financing expertise is usually limited to small business administration programs.
M&A advisors are accustomed to working with more complex transactions that pose more complicated valuations because they include factors such as future potential growth, strategic buyers, investment analysis, and valuation of physical and intellectual assets. They often assist with exit planning, succession planning, and the maximization of liquidity, and they have experience with several financing options. You can learn more about the nuances of company valuation methods here.
The two professional services also operate differently when it comes to the buyers that they have access to for a sale. A business broker has a much more limited pool of buyers than an M&A advisor because they usually prefer to work within their geographical reach, and post the listing online to find buyers and see who bites. It is a much more passive process than what you would get with an M&A advisor. This isn’t necessarily a bad thing, but you need to make sure it is the right option for you. Brokers also tend to sell to private, individual buyers.
M&A advisors work on a highly strategic level to find the most optimal fit with access to buyers that can be anywhere from local to worldwide. They typically have access to connections that brokers do not. M&A advisors are skilled at working with large companies that are more experienced acquirers. They will take the time to understand the buyer’s intentions for a deal. They also are experienced at arranging sales to institutional investors such as private equity funds, which calls for a more involved process, including regulatory issues. Here you can learn more about what to look for in an M&A advisor.
The way that each professional is compensated also tends to differ. Business brokers work with the intention of getting a deal done and receiving a predetermined commission that is a percentage of the deal value. Sometimes they may require an initial deposit.
M&A advisors can also work on percentage payouts, but they play a much longer-term role, and can earn additional compensation for enhanced services that they provide in order to facilitate the most successful transaction. Different advisors may offer different fee structures.
While a business broker may seem like the cheaper option, you should look at the value that you will ultimately be provided. Yes, a broker may cost less, but you could also be leaving money on the table in a deal because M&A advisors go above and beyond to help you drive up the value of your company, offer a targeted marketing strategy, and find the best buyer to accomplish your objectives. They are also experienced at avoiding pitfalls and identifying red flags in the sale process, which could end up saving you from making a costly mistake. Learn more about the value in hiring an M&A advisor.
What is Right for You
The way you choose to go about selling your company can make a huge difference in how much you benefit from the transaction, so it is important to get it right. Both professionals will work in the interest of getting your business sold. Take the time to really understand the differences between business brokers and M&A advisors so that you can make the right call and get the value you deserve. Check out our beginner’s guide to finding an M&A advisor.
Americas: Sam Smoot at +1 (813) 898 2350 / Smoot@BenchmarkIntl.com
Europe: Michael Lawrie at +44 (0) 161 359 4400 / Enquiries@BenchmarkIntl.com
Africa: Anthony McCardle at +27 21 300 2055 / McCardle@BenchmarkIntl.com
ABOUT BENCHMARK INTERNATIONAL
Benchmark International’s global offices provide business owners in the middle market and lower middle market with creative, value-maximizing solutions for growing and exiting their businesses. To date, Benchmark International has handled engagements in excess of $8.25B across various industries worldwide. With decades of global M&A experience, Benchmark International’s deal teams, working from 14 offices across the world, have assisted thousands of owners with achieving their personal objectives and ensuring the continued growth of their businesses.