Eenie Meenie: How to Pick the Right Advisor for Your Business Sale
Having the right team is important in many parts of life, but is absolutely essential when you are planning on selling your business. Unfortunately, it can be difficult to construct that team when you don’t know who should be on it. To make things worse, names of advisors aren’t reflective of their actual services and terms used in business sales can be misleading.
A business broker typically sells smaller businesses to individual buyers (versus private equity or a larger corporation). The process that a broker goes through to sell a business is essentially to vet the seller (are they serious, do they have reasonable price expectations) and to find other individuals that have cash and a desire to own a business. They can match make in a number of ways, but it is a very “grass roots” process and can involve the internet or even direct mail. Business brokers typically work on transactions that are less than $10 million.
Investment Bankers/M&A Advisors
These two are very similar as they generally deal with larger companies. Though the two terms can sometimes be used interchangeably, M&A advisors tend to work the middle market and offer more of a consultative role to their clients. They can be the advisor that offers the services of a larger investment bank and the hand holding that middle market companies need. Their role is generally to buy and sell companies.
Investment bankers usually work on larger transactions (above $150 million) and offer a much larger range of services. In addition to helping people buy and sell companies, they can offer fairness opinions, IPOs, or other stock offerings.
Both M&A advisors and investment bankers sell businesses to other companies or private equity, and those transactions tend to be more sophisticated than the person-to-person transactions completed by business brokers. Both M&A advisors and investment bankers also engage in a competitive process to sell a business that involves reaching out to many buyers and creating competition to generate the highest possible value and best deal terms.
It is always a good idea to use an advisor during the sale of your business, no matter what size. Data has shown again and again that business sale advisors more than pay for their fees in excess transaction value. A 2016 study by Michael McDonald of Fairfield University titled, “The Value of Middle Market Investment Bankers” found that in 84% of the cases, business owners cited that the final sale price received was equal or higher than the initial sale price estimate provided by the investment banker.
In addition to a transaction specialist, your team should include a transaction attorney and your accountant. They have specific, but important, roles to play during a business sale. The combination of the three professionals will ensure that the sale of your business generates the results you want it to.