The M&A market is hitting record and near-record levels this year. Deal-makers of every size need sound advice. Many consult business brokers or M&A advisors. But what’s the difference, and how do you know which one to choose?
What is an M&A Business Broker?
The U.S. Securities and Exchange Commission in 2014 defined M&A brokers as experts who facilitate the “transfer of ownership and control of a privately-held company through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the company.” Brokers help to solicit and negotiate deals.
They often work with clients to set deal objectives, market the business, and support closing. Much like closers, they sell a product. They’re a great fit for smaller and less complicated transactions.
Owners should know that brokers almost always work on a commission basis, typically earning about 10% of the sale price.
Brokers aren’t right for everyone. Their scope of services is limited, especially regarding valuations. So sellers with complex transactions should seek the expertise of advisors who understand the local landscape. Owners who need more help may do better with an M&A advisor instead.
What is an M&A Advisor?
M&A advisor typically help owners with more complex and larger transactions. Most work on deals ranging in size from $5 million to $500 million. It’s not just size that matters here, though. It’s also the breadth and depth of services.
M&A advisors offer a much wider range of services. They act like deal coaches, helping you navigate every aspect of the transaction, from marketing to due diligence and from negotiation to closing. They often work with lawyers, accountants, and other experts. Because of this greater breadth of services, they tend to charge upfront fees in addition to commissions.
Some sellers find that a key issue with M&A advisors is their compensation structure. When a merger presents significant integration issues, an M&A advisor might not discuss these challenges because they are only compensated for closing the deal—not for managing the integration. M&A advisors are only paid when the deal is complete, so they have an incentive to rush to completion, but not beyond.
After years of slowdown because of the Great Recession, the small and mid-sized business market is booming now. Business owners and buyers have a lot to consider before investing in a massive transaction. The right advisor can help you make intelligent decisions. But one important decision happens well before the sale itself: which type of advisor do you need? Spend some time honestly assessing value, contemplating what aspects of the deal you’re able to manage yourself, and assessing your needs.
Next, begin interviewing potential advisors. Ask them what they provide, what their fee structure is, and whether they have data on the average return sellers get on their advisory investment. This can help you make intelligent decisions that maximize value, streamline the deal-making process, and ultimately help you sell your business with more favorable terms to a deal partner who can see your business through the transition.