and Acquisition Advisor or Business Broker – Which One Do you
Need in Order to Sell your Business?
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THAT GOES THE EXTRA MILE
Acquisition Advisor or Business Broker – Which One Do you Need
in Order to Sell your Business?
sell a business only once or twice in their lifetime. Selling
a business may be the most difficult task for a businessman who
might have taken years to build a profitable and reputable business.
When he puts it up for sale, he hopes to recover the price for
all that he has put into it. Selling a business can be profitable
decision or one that can result in the loss of one’s life’s work.
It is advisable for businessmen to hire professionals for selling
their business. If your business falls into the mid-market category
and you aim to drive a strategic deal out of your sale, you will
require an expert merger and acquisition advisor. But if your
business belongs to the Main Street and you just want to get the
best price for it, you might need a business broker. Below, we
discuss some of the differences between the two professionals,
which can help one decide whom to hire for selling a business.
• Type of
Business brokers specialize in what are called main street businesses,
which could be in the range of $100,000 to 1,000,000 in revenues
and include businesses like restaurants, dry cleaners, gas stations,
convenience stores etc. M&A advisors usually take on businesses
with larger turnover, like manufacturing units, technology firms,
distributors etc. If the business to be sold is amongst main street
businesses, the services of a business broker to sell the business
would be appropriate, whereas if it is larger, then the services
of a merger and acquisition advisor would be needed.
Business brokers target individual businessmen for selling a business,
whereas M&A advisors are connected with corporate buyers, who
seek a strategic reason behind a merger or an acquisition.
• Business Valuation
Business brokers generally apply “rule of the thumb” valuations
for main street businesses to determine their selling price. Such
valuations rarely vary. Merger and acquisition advisors are called
in when there can be a broad interpretation of strategic value
and rules of thumb do not apply. Large businesses generally have
high components of niche services, intellectual properties, strong
customer base etc, which make the strategic value for the business
Business brokers handle small businesses to sell and their clients
consist of individuals. The process of selling the business is
simpler as compared to larger corporations. Contracts for small
businesses are straightforward and negotiations are based on the
requirements of the seller, price and financing. For a merger
and acquisition advisor, the target is a corporate buyer, who
is an expert at M&A deals. Corporate buyers have different teams
working for them like legal experts, investment bankers, valuation
professionals etc. and their contracts are extremely complex.
A corporate buyer sends in teams to conduct due diligence and
examine the business to sell in detail. Hence if the business
to sell is a large corporation, the seller will need a merger
and acquisition advisor, who is equipped and experienced to negotiate
with such pros.
• Volume of Clients
Business brokers represent as many businesses for sale as they
can. For business brokers, it is a benefit to have many businesses
listed with them when they are contacting individual buyers. Business
brokers rely on mass email a campaign, posting on websites etc.
and their attention is divided amongst many clients at one point
of time. Merger and acquisition advisors, on the other hand, have
an exclusive clientele of 3 to 4 clients per professional. With
specific industry niches and a customized database of contacts,
merger and acquisition advisors give their clients the personal
and professional touch that they demand.
Business brokers have a system of a minimum upfront fee plus around
10% of the transaction fee on completion of a successful deal.
They do not charge monthly fees. Merger and acquisition advisors,
on the other hand, charge a substantial upfront fee or a monthly
fee in the range of $3000 to $10,000 per month. M&A advisors also
charge a percentage of transaction value as fees on completion
of the deal, which is decided on basis of the size of the business.
Big Wall Street M&A companies are known to refuse transactions
below $1 million in fees.
Based on the
points made above, you can decide whether to hire a business broker
or an M&A advisor for selling your business. The major deciding
factor will be the cost that you are willing to incur. Keep in
mind that if you have a small business to sell, it will not be
able to sustain substantial upfront as well as monthly fees of
the merger and acquisition advisor. Hence it would be better to
go for a business broker. Go for a merger and acquisition advisor
only if you need to sell a large corporation with high intellectual
property and niche services.