M&A advisors and investment bankers are similar in their offerings, though there are certainly some differences. M&A advisors bridge the transaction market gap between the smaller businesses that are sold by business brokers. The larger transactions typically take on a more complex structure and the regulatory bodies require the servicing professionals to carry certain licenses. However, depending on the transaction structure, some lower middle market transactions do not require the advisor to be licensed under the securities laws. You will find that most M&A advisors are not licensed. This is very much a grey area and subject interpretation of certain foggy facts that will hopefully be addressed by the SEC and Congress in the months to come. If not carefully navigated this can create additional transaction risk to both the advisor and the transacting parties.
Investment Bankers
Investment bankers typically offer a broader range of services and work with larger companies; however, in the last 5 to 10 years it is more common to see investment banking firms servicing clients in the middle market. Investment banks provide several services that business brokers do not. Some of these services include: fairness opinions, public offerings, a much broader line of financial services, etc. These require formal licensing as a broker-dealer. Additionally, investment banks are usually staffed with various professionals that provide a wider range of experience, licenses, and other certifications. The depth of experience and wide array in skill set allows the bank to handle more complex transactions and provide these technical services.
Business Brokers
Business brokers typically serve smaller companies that will likely sell to an individual buyer (vs. a corporate or institutional buyer). The types of businesses they usually service are hair salons, franchises, gas stations, dry cleaners, convenience stores, small service businesses, single location restaurants, etc. The professional agreement terms that are used are very similar to selling a house. It is rare that a business broker will charge an upfront fee. However, it is very common that they will require that the preparation of marketing materials and historical and forecasted financials be all done by the business owner. If you are a buyer, you should know that most, if not all, the preparation is done by the seller. This creates a much bigger transaction risk for both the buyer and seller – it is more likely that the books will not be prepared in agreement with GAAP accounting standards and/or it is highly unlikely that they are audited financials. The typical transaction is the sale of the company’s assets using a template or standard legal forms. These forms often omit key sections that minimize post-transaction liabilities.
How Does the Term ‘M&A Advisor’ Compare to The Term ‘Business Broker’?
One of the primary distinctions between the popular use of the term ‘business broker’ compared to the term ‘M&A Advisor’ is the fact that business brokers are often licensed real estate brokers. In my experience, M&A Advisors almost never have real estate brokerage licenses. Many main street transactions include the property on which the business is based. The owners usually want to sell the business and the property together. If an M&A Advisor is involved in a transaction that includes a real estate component, they would usually separately engage a real estate agent to facilitate the real estate portion of the transaction – even if both are being sold to the same buyer
How M&A Advisors and Investment Bankers Are Similar?
Both Investment Bankers and M&A advisors run a proactive process to sell a company that is structured and usually focused on creating a competitive and timed market for the seller with the goal of optimizing the value and reaching the seller’s objectives. As mentioned before, the process a business broker takes is much more passive. The proactively managed process of M&A advisors and investment bankers tend to add a lot more value. Investment bankers and M&A advisors typically buy and sell companies to/for institutional companies, family offices, other mid to large size companies, private equity funds and occasionally the high wealth individual. The transactions at this size and stage of the market tend to be much more complex. The required level of sophistication, deal experience, and understanding in corporate finance is not found at the lower-end of the spectrum. It is often that these professional provide non-transactional value. In many cases, these groups have worked with companies in similar industries or comparable sizes. They have seen common challenges and growth strategies that work. A polished professional may enlighten management with operational changes that could improve the company prior to a sale.
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