Who To Hire When Selling Your Business
When it comes to selling your business, it is important to work with an advisor who has the proper knowledge and expertise to manage your transaction. After all, you only get one chance to sell your business and selecting the wrong advisor could cost you part of your retirement. Today, such intermediaries are frequently referred to as business brokers, mergers and acquisitions (M&A) intermediaries, or investment bankers.
All business intermediaries work towards one common goal, to help you manage the sale process by evaluating your business, marketing it confidentially to find the best buyers, negotiating the deal, and closing the transaction. However, the methodologies and expertise required could differ greatly depending on the size of your business. Because each group of business intermediaries specializes in a specific “bandwidth” of the market, the key is to find an intermediary that fits you and your company.
A “business broker” commonly assists small business owners selling companies with less than $1 million in annual revenue. These lower-market or “main street” businesses are usually local service establishments, such as restaurants, convenience stores, dry cleaners, and other small service-related businesses, where the individual buyer will most likely become an “owner-operator”.
Because the projects typically have smaller success fees, business brokers usually handle numerous engagements simultaneously, often with as many as 10 businesses for sale at any given time. As a result, they can only provide clients with limited attention, and their marketing capabilities are usually confined to posting “listings” for sale on various web sites, including their own. In addition, the educational background and experience of these individuals are often limited. Even some residential and commercial real estate agents dabble in business brokerage.
M&A intermediaries are advisors working with owners of businesses with annual revenues between $1 million to $100 million. These professionals have experience attracting the attention of strategic buyers and private equity groups, in addition to high net-worth individuals. They are also familiar with a wide array of financing sources to facilitate the more complex capital structures of larger transactions.
By managing only one or two engagements at any given time, M&A intermediaries are able to create in-depth marketing materials for each project and spend significant amounts of time with each individual client.
Because of the complex nature of larger deals, M&A intermediaries often work with a business owner’s team of professional advisors (attorneys, accountants, financial planners, etc.). Together, this “deal team” can assist each other and help ensure a successful sale. M&A intermediaries often charge a retainer fee at the beginning of the engagement to compensate for the significant amount of work involved in evaluating and preparing the marketing materials during the planning stage. However, reputable intermediaries collect the majority of their fees upon the successful sale of the business, usually by a scaled percentage formula.
Investment bankers operate in the mid-market to upper-market range, serving owners of public and private businesses with annual revenue of $100 million or more. These firms regularly network with businesses and private equity groups wishing to acquire larger companies. However, while professional and knowledgeable, investment bankers typically lack the network of buyers looking to acquire smaller companies.
In addition to offering strategic advice in mergers and acquisitions, investment bankers also help clients raise debt and equity capital, recapitalize, and refinance. Fees for investment bankers are negotiated and can vary depending upon the conditions in the contract.
The business intermediary is a key player in facilitating the successful sale of a business, and it is important to interview several before deciding who is most suitable. A business broker who sells convenience stores and ice cream shops may not know how to handle a larger manufacturing, distribution, or construction business. Ultimately, the right intermediary is someone whose specialty is a good fit with your needs.
This document is for informational use only and may be outdated and/or no longer applicable. Nothing in this publication is intended to constitute legal, tax, or investment advice. There is no guarantee that any claims made will come to pass. The information contained herein has been obtained from sources believed to be reliable, but Mariner Capital Advisors does not warrant the accuracy of the information. Consult a financial, tax or legal professional for specific information related to your own situation.