Picking the Right Intermediary for the Sale of Your Business
You are ready to sell your business. You ask around and find that some businesses are sold by Business Brokers and some by Mid-market M&A Advisors. The difference in intermediaries can make difference of 20% to 40% or more in what you can take away in many situations. So, picking the right intermediary can have a major impact on your nest egg. Which one of these is right intermediary for selling your business? Who should you use?
The following table shows the applicability of these intermediaries based on various metrics.
Business Broker Mid Market M&A Advisor
Size Of Business Less than $2M $2M - $100M
Less than 10 employees Tens or Hundreds of employees
Type of Business Mostly Retail (aka “Main Street”) Distributors, Manufacturers, Healthcare,
Technology, Large retail, B2B companies
Typical Representation Seller & Buyer (Dual Agent) Either Buyer Or Seller
Typical Acquirers Individuals Corporations, Private Equity
Typical Sale Type Asset Asset or Stock or Mixed Licenses Real Estate (RE) Securities & RE Pre Sale Planning No Yes – Extensive
Business Valuation Street Multiple / Rules of Thumb Strategic Value, DCF, Dilution
Transaction Complexity Simple Complex Size of contracts A few pages Tens of pages Typical Fee Structure 10-12% Double Lehman/Negotiated Upfront Fees No Maybe
Typical Multiples 2-3x Discounted Cash Flow 3-15 EBITDA
Variability In Value Low High
The deciding factor in selecting the right intermediary is type of business you have. For small companies with revenues under $2 million and for large companies with revenues over $100 million, the choices are obvious.
If your business is a small retail or service business and there is typically no strategic value in the business, any competent business broker may be able to get the job done. However, if you expect the deal size to be higher than $2M, your interests are likely to better served if you choose an intermediary to represent you exclusively (i.e. not a dual agent).
An M&A Advisor is the right choice if your business is larger, complex or has a high component of product or service specialization. A competent M&A Advisor can unlock the value in your business, represent you exclusively, and get your business the higher value it deserves. This is extremely important if your business has untapped strategic value or has intellectual property subject to a broad interpretation of value in the marketplace.