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Exploring Distinctions in Business Sales: The Business Broker or M&A Advisor vs. Investment Banker

Business Broker M&A Advisor Investment Banker

When contemplating the sale of your business, the decision to enlist the services of a business broker, M&A advisor or investment banker becomes crucial. Delving into the nuances of each role can help you make an informed choice. Here are key considerations to ponder. A great business broker will know their limitations and have investment banker referrals at the ready, as will an experienced investment banker.

Size Matters:

The primary differentiator between a business broker, lower middle market M&A advisor, and an investment banker lies in the size of the businesses they handle. Business brokers typically focus on “Main Street” businesses with revenues under $5 million, while lower middle market advisors specialize in companies surpassing the $5 million revenue mark, and will generally go up $30 million to $50 million enterprise value range depending on their individual teams. While exceptions exist, the $5 million threshold and $50 million threshold often serve as a practical guideline, justifying fees in alignment with the complexity and effort invested. Investment Bankers step in at that $30-$50 million range and work “larger” transactions.

Resources at Your Disposal:

Business brokers are often solo practitioners with limited resources. In contrast, M&A Advisors and investment bankers generally brings forth a team, including senior bankers, financial analysts, and a dedicated research teams. This collective effort is geared towards preparing larger businesses for sale, managing data sites, and facilitating seamless communication between the seller and potential buyers.

Targeted Buyer Outreach:

A significant distinction arises in how advisors approach reaching potential buyers. Business brokers adopt a more generalized approach, akin to a realtor listing a home on multiple platforms. On the other hand, lower middle market advisors and investment bankers employ a targeted strategy, leveraging industry knowledge, experience, and proprietary databases to identify potential suitors. All approaches are particularly advantageous in maintaining confidentiality and attracting qualified buyers.

Regulatory Landscape:

While investment banks operate under strict regulations, business brokers and lower middle market mergers and acquisition advisors often face minimal requirements, some states even push business brokers under real estate licensing.

Fee Structures:

Business brokers commonly forgo monthly fees, opting for a percentage-based commission (usually 10–12%) upon transaction closing. In contrast, lower middle market M&A advisors will require some upfront fees to initiate services and investment bankers may require a monthly retainer or milestone payments tied to specific engagement stages. Fees vary based on business value and transaction size, with some adopting a graduated fee structure, aligning incentives with achieving prices beyond expectations.

The Decision-Making Journey:

Selling a business is a monumental decision, and seeking professional assistance is advisable. With the complexity and time demands of the process, engaging a professional can provide expertise that many business owners lack. A confidential discussion with a broker, M&A advisor or investment banker can shed light on your business’s worth, their process, and the associated fees. Initiating this dialogue ensures that you approach the significant decision of selling your business with informed consideration.

The team at Lion Business Advisors is comprised of both main street business brokers and Sr. M&A Advisors that focus on the lower middle market. We have great relationships with some of the best investment baking firms in the nation. We are happy to have a conversation with you about who can best represent you in your exit goals.