If you are selling your business, one important question you should be asking is what intermediary you are going to use. A skilled intermediary will help with the negotiations. It will also work out a good deal structure and get the best strategy together for the sale. The intermediary can make a huge difference in the final deal (sometimes as much as 40%). It acts an an advocate for the business and finding the right buyer. So which is better a Business Broker or a Mergers and Acquisition advisor? Well, first let’s have a look at the difference between these.
Deals with a Business Broker
- Most of the marketing is done using a website with businesses for sale
- Sales are usually made to individuals, who will run the company
- There is no initial fee
- An individual agent carries out the work even if part of a bigger firm
- The individual will be working on several deals simultaneously in order to stay profitable
- Typically Business Brokers do little research into buyers and selecting them.
- Less time is given on each deal as they cannot make a profit given the smaller fee that they take from the deal.
Deals with Mergers and Acquisition (M&A) advisors
- Marketing is done with a proper analysis of the business and research done in finding the right buyer
- Research is made into the industry and advice to the business covering many aspects to prepare it for sale and enable it to be of maximum worth
- Typically companies are sold to those who have a strong management and usually with a separate owner such as other businesses or investors that buy and sell businesses.
- There is an upfront fee
- Work is done as a team with specialists in business, finance, law and other related fields. Often a law degree or MBA plus experience in banking or private equity is required before becoming an M&A advisor
- Significantly more time is spent on each deal
- Expert advice given on the strategy for the negotiations and the deal is managed right through to the end
In short Business Brokers are suitable for sales that are relatively simple and easy to evaluate, whilst M&A advisors are necessary for the sale of more complex businesses.
Which is the better one?
So if you are wondering which you should choose the following rule of thumb is helpful:
If the value of your business is less than $2 million and would likely be sold to an individual then a business broker is good for the deal. A business broker would usually be used in the sale of main street businesses, such as restaurants, hairdressers auto repair shops etc. If your business is worth much more and you are likely to sell it to a company, then you will definitely benefit from M&A advisors that are focused on larger deals. You will benefit from the more strategic methods. And will expect to increase the value of your business by much more than the amount you spend on this route.
If your company is in the middle of these two scenarios, think about how your best interests will be served. Has your business got strategic value; is it specialized in either a particular product or service or has it got intellectual property? In other words is the business open to a wide range in its evaluation? In these cases an M&A advisor will definitely be an advantage as it taps into the true value of the business by presenting the business well with research into finding the right buyer who can benefit from this business. If however, the business is fairly straightforward, then the extra cost may not be worthwhile.
It is important that you get the value your business is worth when you sell. Many will avoid getting M&A advisor as their intermediary because of the extra cost. But the case is different if the business is more complex and open to a wide range of evaluation. Then the amount spent will be more than repaid in the return made on the sale.