A business intermediary is a company or person that facilitates the transfer of business ownership from one party to another. Under this catch-all umbrella are business brokers and merger and acquisition (M&A) firms.
I’m a bit of an expert in this subject because I’ve done both M&A work and business brokerage, and my company now is positioned in the middle, as a “M&A Broker”. Here is a summary of the differences, starting with a small company.
“Main Street” businesses can generally be regarded as business valued under $500,000, or with fairly simple transactions over $500K such as gas stations and grocery stores. Then there are “upper main street” businesses valued at up to $1 million, and above that on the ladder there is the “lower middle-market” $1 to $10 million in value. (Still up the ladder is the area of large national M&A and investment banking.)
There are major differences between these types of businesses and the business intermediaries that represent them.
Business brokers can be characterized by:
1. Works with main street and upper main street businesses
2. Markets businesses mostly via businesses-for-sale websites
3. Sells companies mainly to private individuals
4. Financing expertise usually limited to SBA programs
5. Must maintain quite a few simultaneous listings to make a decent living
6. Usually 10% success fee with no upfront fee
7. Typically works alone, even if the broker works for a larger organization
Mergers and Acquisition Firms can be characterized by:
1. Markets businesses mainly to other businesses by a variety of methods
2. Knows how to attract professional investors such as private equity groups
3. Will usually create a thorough “package” with analysis and writeup
4. Often will charge a retainer or consulting fee upfront
5. Usually has more experience with a variety of financing alternatives
6. Often works as a team
7. Charges a success fee built on a sliding scale that declines with purchase price
If you own a business and wish to sell, you definately want to end up with the appropriate representation. I’ve seen multi-million dollar companies represented by business brokers that didn’t know how to effectively market that type of company. I’ve also seen M&A firms neglect to consider that a company could be best marketed on the business-for-sale websites, which can be quite effective even for larger companies.
My company is positioned between a business broker and an M&A firm, which has its challenges – a subject for another post.