13 Jun Business Broker vs. M&A Intermediary
The following is taken from the preface of Selling Middle Market Businesses: Guide Book for intermediaries by Russell Robb.
There is a movement afoot whereby business brokers are moving up-market from selling Main Street businesses to selling companies in the lower-end of the middle market, previously the exclusive domain of the M&A intermediary. There is no precise definition of lower-end of the middle market as some people would clarify companies with sales between $5 to $100 million, while others would classify this category as companies with sales between $3 to $50 million.
There is a natural tendency for business brokers selling Main Street companies to move up market where the commissions are more lucrative. It is as natural as real estate brokers who often start-off selling residential houses for $300-500 thousand to move up-market to eventually sell multi-million dollar homes. But, the game is played differently at these two levels, and the valuation methodologies are dramatically different between Main Street businesses and the middle market businesses.
Business Broker vs. M&A Intermediary
In this preface, I will explain the major differences between the business broker and the M&A intermediary including the preparation and the process. The following is a short list of highly abbreviated differences between a broker and an M&A intermediary.
|Size of Business Sales||$100k – 3M||$3M-100M|
|Type of Businesses||Retail Stores||Manufacturers|
|Brief Write-up||Memorandum (30-50 pages)|
|Type of Buyers||Mostly Individuals||Strategic|
|Locals||Private Equity Groups|
|Compensation||Usually no Retainer||Retainer|
|10-12% Commission||Structured Commission|
|Minimum $150 to $500k|
|Sale Process||Advertising||Controlled Auction|
|Email Blasts||Specific Time-line|
|Many Buyers Visit Seller||Few Management Meetings|
|Firm’s Advantage||Number of Seller Listings||Specific Industry Focus|
|Duration of Contract||12 months||6 months then Renewable Thereafter|
|Confidentiality||Extremely Tight||Involve CFO & probably Sales Manager|
|After Hour Visits|
|Only Owner Aware|
|Financials||Use of very limited figures||Extensive Analysis|
|Decision Maker||Founder/CEO||Founder/CEO and/or Board of Directors|
|Fees||Around 10% Commission||Scaled depending on size such as:|
|4% on $10M deals and 1% on $100M deals|
|with minimums of $150k, $200k or $500k, etc.|