Tuesday, May 22, 2007

Selling Your Business - Business Broker or Merger and Acquisition Advisor

Number of Clients Represented - Business Brokers want to represent as many business for sale as they can. When contacting their vast network of individual buyers it is a real benefit to have a vast inventory of companies. Because on this, their approach is more of a mass mailing, mass email, post the business on a business for sale Web site, type of approach and their attention is spread over 25 or more simultaneous clients. Merger & Acquisition Advisors usually limit their number of engagements to 3 or 4 per professional at a time. Their approach is very hands on and labor intensive. Merger & Acquisition Advisors usually rely on a direct selling approach of calling the buyers and talking with the M&A department or the president. Often Merger & Acquisition Advisors will have specific industry niches and will have a customized data base of contacts. They often have had several prior contacts with the buyers and are able to penetrate the call screening that is set up to protect these individuals. A corporate buyer does not buy through a posting on a business for sale Web Site. A corporate buyer will open 2% or less of letter solicitations. A corporate buyer will read less than 1% of unsolicited and unknown emails. Corporate buyers demand personal and professional contact to get their interest.

Up-Front or Monthly Fees - Business Brokers generally will charge a minor up-front fee to begin the engagement or have a simplified valuation completed. Generally there is no monthly fee charged. Merger & Acquisition Advisors generally charge either a substantial up-front fee or a monthly fee in the $3500 to $10,000 per month range depending on the size of the business.Success Fees - Business Brokers generally charge a success fee of 10% of transaction value. Merger & Acquisition Advisors generally have a sliding scale based on the anticipated size of the business. The known Wall Street firms that sell the mega businesses will not touch a transaction where they are not guaranteed $1 million in fees. The big regional firms require at least $750,00. The M&A firms that deal in the lower end usually charge considerably less than that with a minimum or $150,000 cash at close. If your transaction value is in the $10 million range, count on paying your M&A firm $300K to $400K.

Conclusions - The deciding factor is in cost benefit. An M&A firm is going to cost a lot of money and you are going to be paying either an up front or monthly fees without a guarantee of success. If your business is smaller and is a commodity type business or Main Street business where the target buyer is an individual, an M&A firm will not add much value and is not worth the fee.If your business is larger, complex, unusual, strategic, with a high component of intellectual property or technology and subject to a broad interpretation of value in the marketplace, an M&A firm is the right choice. In the final analysis, is a swing of 20% in your company's selling price worth $5,000 per month for 8 months?

1 comment:

Certified Business Brokers said...

Many Business Brokerage Firms handle mergers and acquisitions in the same manner as other middle-market M&A firms. They are Certified Business Intermediaries (CBI) as well, and utilize proactive marketing techniques to find the best strategic fit for their clients. Their fees are, in general, success based and do not require large up-front fees and only work with a few M&A clients per year. Their clients are the owners of privately-held enterprises. You will find that the principles of some business brokerage firms have experience in handling deals in the $10 million-dollar-and-up range and have MBA's from ivy league institutions. In general, clients achieve their objective when using experienced business brokerage firms to help them sell their companies.....and may not have to pay the higher fees for the same service performed by a firm using a different word to describe the same service. It is becoming a common practice across the U.S. for business brokerage firms to combine an M&A practice and main street practice under the same roof with much success.