Business Broker vs. M&A Advisor: The Difference and Why it Matters
If you're considering selling your business, it is essential to understand the difference between a business broker and an M&A advisor to choose the right professional for your needs.
When it comes to selling a business, many people assume that business brokers and M&A advisors do the same thing. It's understandable to think that way given that they both assist in the sale of businesses, but the truth is that they differ in several significant ways. If you're considering selling your business, it is essential to understand the difference between a business broker and an M&A advisor to choose the right professional for your needs. In this blog post, we will discuss the difference between business brokers and M&A advisors, and why it matters to you.
Role and Services Provided
The primary difference between a business broker and an M&A advisor is that a business broker typically assists in the sale of smaller businesses, while an M&A advisor handles the sale of larger companies with enterprise/transaction values exceeding several million dollars. Business brokers provide services such as business valuation, preparing the business for sale, advertising and marketing the business, screening potential buyers, and assisting in the negotiation and closing of the sale. On the other hand, M&A advisors specialize in the merger or acquisition of larger companies, a process that involves more complex legal and financial considerations.
Another significant difference between a business broker and an M&A advisor is their level of expertise. A business broker typically has experience in a specific industries that typically that have smaller businesses to market and specializes in the sale of businesses within those industries and size ranges, such as restaurants or retail stores with prices below $1 million, whereas an M&A advisor typically has a broader range of experience (and deeper industry experience) and can handle more significant transactions, . M&A advisors have expertise in complex transaction structures, financing options, due diligence, taxation, and legal compliance.
The fees charged by business brokers and M&A advisors differ significantly. Business brokers charge a commission based on the final sale price of the business, typically ranging from 8 to 10%. M&A advisors, on the other hand, charge a retainer fee, which is a flat fee paid upfront by the client, and a success fee, which is a percentage of the final sale price paid upon the successful closure of the deal. M&A advisors generally charge a higher fee in aggregate due to the complexity of the transaction, the level of expertise required, and the transaction size. The percentages are actually lower as the transaction size increases.
Business brokers and M&A advisors also differ in terms of their network. Business brokers have a smaller network and typically deal with local buyers and sellers within a specific industry. M&A advisors have a broader network and usually deal with national or even international buyers and sellers. They have connections with private equity firms, strategic buyers, venture capitalists, and other professionals involved in M&A transactions.
Navigating Business Transactions
The difference between business brokers and M&A advisors boils down to the size and complexity of the business transaction. If you are selling a small business, a business broker may be enough to get the job done, and M&A Advisors often have transaction size minimums. . However, if you are selling a significant and complex business, hiring an M&A advisor is the best option. They provide a higher level of expertise, broader network, and confidentiality. Understanding these differences and choosing the right professional for your needs can save you time, money, and potential headaches in the long run.
It may be helpful to note some differences in terminology describing the two roles: a term synonymous for business broker is “main street broker”. It’s important to note that not all Real estate brokers are business brokers, and vice versa, and for smaller transactions that do not include real estate, a business owner will benefit much more from an experience business broker in smaller transactions. For M&A Advisors; many use synonymous terms such as M&A Broker, Intermediary, Investment Banker.