If you are considering selling your business, you may be wondering what the difference is between Business Brokers and M&A firms. They both handle the sale of businesses. To make matters more confusing, some advisory firms that handle the sale of businesses are a combination of an M&A firm and a Business Broker. We’ll compare and contrast M&A firms vs. Business Brokers.
There is no legal difference between an M&A firm and a Business Brokerage firm. It really comes down to how a firm wants to classify themselves. However, there are some differences in what people think of when they consider a company to be an M&A firm or a Business Broker. There are three main differences to consider when determining if a particular company is an M&A firm, Business Broker, or a combination of the two.
- What size businesses do they sell?
- How do they market the business?
- How is their fee structured? Do they charge an upfront fee?
What size businesses do they sell?
When people think of M&A firms vs. Business Brokers in most cases M&A firms, in general, tend to handle the sale of larger businesses. There is no consensus as to where to draw the line with what is a large business and what is a small business but here are some guidelines that some people consider when they consider Business Brokers vs. M&A firms:
- Many M&A firms only sell businesses with revenues above $5Million, and Business Brokers handle companies below $5 Million in revenue.
- Many M&A firms only sell businesses that have an annual net income above $1 Million and Business Brokers sell businesses below that.
- Some M&A firms only handle transactions above $3 Million, and Business Brokers handle some sales below that.
Of course what size a business handles varies depending on the firm but these are some general guidelines. Next, we’ll discuss how M&A firms and Business Brokers market their businesses for sale.
How do they market their businesses for sale?
Let’s start with what they have in common. Both M&A Firms and Business Brokers sell businesses confidentially. Whether your business is large or small, most businesses owner’s don’t want their customers, employees, and competitors to know that their business is for sale.
They both write an overview of the business for sale that doesn’t provide the name of the company but gives an idea of what they do, the size of the company, and a general location. This overview description is sometimes called a teaser. They both require potential buyers to sign confidentiality agreements and provide their qualifications before giving information beyond the teaser.
What different marketing strategies to they use?
M&A firms usually proactively market the teaser overview to potential buyers. They tend to market the teaser via mail and email to four different types of potential buyers:
- Companies within the same industry.
- Companies in related industries.
- Private Equity Groups.
- Their list of potential buyers that they’ve developed over time.
Business Brokers usually advertise the overview teaser on business for sale websites such as bizbuysell, businessesforsale.com, bizquest, and businessbroker.net. From the advertising, they will tend to get potential buyers from the same industry and related industries as well as private equity groups. They’ll also get individual potential buyers who need to be qualified to see if they have enough funds. As with M&A firms, business brokers also contact their potential buyers that they have developed over time.
Advantages & Disadvantages of each strategy
- An advantage of the approach that business brokers use is that you are only getting potential buyers that are motivated enough to seek out information on a particular business for sale proactively. A disadvantage is that the business broker needs to spend time qualifying these buyers to make sure they have significant funds.
- With the business broker strategy, you can get potential buyers that you may not think of and aren’t on any list that an M&A firm might use. They may just be a wealthy individual that’s motivated to buy a business and has the perfect experience to run and grow the business. M&A firms can miss out on these valuable potential buyers.
- An advantage of the M&A strategy is that by proactively contacting potential buyers they are reaching buyers that might not be actively looking on the business for sale sites, but when they receive the teaser, they get interested. Another advantage to the M&A firm’s strategy is that they don’t need to take time to qualify the individual buyers that respond to ads.
What’s the best way to sell a business?
We feel that the best way to sell a business is to use the techniques of both a business brokerage firm and an M&A firm. So we proactively reach out to potential corporate buyers and private equity groups, and we advertise the teaser on business for sale websites that allows us to reach an extensive range of prospective buyers from around the world.
This provides our clients with maximum exposure to potential buyers and is one of the reasons we consider our firm to be a combination of both a Business Broker and an M&A firm. Also, it has allowed us to grow our active potential buyer database to 24,000 potential buyers that we contact for each business for sale.
What fees do M&A firms and Business Brokers charge?
Most Business Brokers only charge a fee if they successfully sell your business. Many M&A firms charge an upfront fee before they begin marketing your business. They will say this is to cover the costs of producing a marketing document. However, the marketing document often contains boilerplate language on the industry that often goes unread by most buyers who will do their own industry research and are more concerned with the details of the specific company.
Another reason that M&A firms like to charge an upfront fee before marketing the business is so they know that you are invested in the sale of your company and they don’t waste their time. There is some rationale for this. However, an experienced business broker can usually tell if a seller is motivated and is selective in the assignments that they take on.
What type of fee would you prefer when selling your business?
When selling a business, most people prefer not to pay a fee until the company is sold. We believe this leads to a better alignment with the goal of selling the business. This way there is no incentive to take on an assignment unless you have some confidence that a company will sell. For more on this, you can read: What fees are paid for selling a business? You can also read some tips for selecting an M&A firm or Business Broker that would be a good fit to market your company.
Synergy Business Brokers M&A
Synergy Business Brokers combines the best practices of a Business Brokerage with the best practices of an M&A firm. We use the marketing strategies of both Business Brokers and M&A firms and provide you with the better fee structure of a business brokerage firm with no fee until your business is sold. To hear what our customers have to say visit Testimonials & Reviews.
Our focus is on selling businesses that have annual revenues of $700,000 to $40 Million and an owner’s net income of $200,000 to $5 Million. We only sell businesses in industries where we have experience and potential buyers: manufacturing, distribution, technology, construction, healthcare, services, contractors, transportation, and education.
For an overview on us, you can view Synergy Business Brokers on Youtube.
We hope we have answered your general questions on the difference between M&A firms and Business Brokers. For a confidential consultation to discuss your specific issues, please fill out our simple online form or email us at [email protected] We look forward to speaking with you to see if we can help sell your business. If you would like to join our team please view Synergy Careers.