Investment Bankers vs Business Brokers


One of the main differences between using a Business Broker or an Investment Banker is in the size of the business. This is when it comes to selling a business.  Business Brokers work with smaller companies. These companies are normally selling to an individual buyer rather than to an institution or corporate buyer. Transactions are usually less than $2 million, and certainly no more than $5 million.  It has been estimated 80% of volume in business sales go through a business broker. Whereas only 5% of the final deal value.

This undoubtedly shows that they will not be able to spend as much time and effort on any one deal. Typically, a business broker will list the business on a website. And then market it with an asking price. This is just like how a house may be put up for sale.  Buyers will then make enquiries about the particular business. And if they are seriously interested a confidentiality agreement or a non-disclosure agreement (NDA) is signed. This is done so that competitors or company employees do not hear about the sale before completion. The buyer is then given access to the financial information of the company. The broker will then take the negotiation process up to the final deal.

Business brokers will charge between 8 – 12% of the final deal price, 10% is typical.  This percentage is split between the buy side and sell side broker if they both exist.

The advantages of Investment Bankers

Investment Bankers work with the larger companies and have a broader range of services.

  • They are more proactive in the selling of the company, including making a strategy and planning the exit alternatives.
  • Investing bankers will consider optimizing value by creating competition and good timing.
  • They will be in negotiation with several buyers at the same time, often with an auction type scenario and actively seek a good buyer.
  • These bankers are usually buying for and selling to institutional investors or corporate companies.

Transactions can be complex and require a deep knowledge of financing at this level. Deals are usually greater than $250 million and the largest investment bankers will only take on the multi-billion-dollar deals, that may take years to conclude. Smaller investment banks may cover transactions from $50 million upwards and the lower middle market bankers may even set a minimum at $500,000, EBITDA.

If the investment bank is dealing in securities in USA, they will need a security license which is issued by the SEC (Securities and Exchange Commission) and monitored by FINRA (the financial Industry Regulatory Authority).

Investment bankers will usually charge a monthly retainer fee, which is credited to the success fee.  The final fee can be around 10% of the final deal for those under $1 million with a decreasing scale the higher the final price.

M&A advisors cover the gap in the middle market between the business brokers and the Investment bankers. They work in a similar way to the investment bankers, but with some differences.


Most people have not had experience in selling a company before and the whole process will be overwhelming when doing it for the first time.  To save many pitfalls and to get the best deal for your company it is strongly advisable to get an intermediary on your side.  This will not only help with the negotiations, but will enable you to market your business and make it available to the right buyers.  The benefit in being able to concentrate on keeping your business in good shape and getting the best price will far outweigh the fees that you will need to pay for this service.

Whether you go to a business broker or an investment banker will be determined by the size of your company.  An investment banker would be extremely unlikely to agree to be an intermediary if your business has a valuation of less than $5 million or EBITDA below $500,000. On the other hand it is necessary for larger companies to have the financial expertise and licenses that only the investment banker will have.

Finally, …

Just one last piece of advice. This is especially for the lower middle market business looking at getting an M&A intermediary.  Make sure you find someone who understands your business and with a good reputation.  The increase of small M&A businesses out there means an increase in both the good and the bad. But there are plenty of options.  Look at their track record carefully. Make sure they have the reach and network for your area of business.

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