You've spotted the right opportunity to buy someone's business, sell yours or merge with another business for a profitable move. Before you move ahead, its advisable to consult the brokers and advisors who are considered experts in the field or marketplace, to find the perfect fit. But what different kinds of advisors exist in the market and what services do they offer? Primarily, service provides for such business level transactions can be categorized into two: Business Brokers and M&A advisors.
This article discusses the key differences between Business Brokers and M&A Advisors.
Let’s start with two simple examples:
- A certified mechanic, who recently completed his automobile training course, is looking to purchase an established car repair workshop in his locality to start his own car repair business with further expansion possibility to employ more mechanics at his garage in future.
- An automobile firm is looking to invest strategically with an aim to build large multi-city network of associated garages of their own brand or on franchisee model. They are targeting multiple garages up for sale, as well as those who can be persuaded to partner in.
Here is a second set:
- An individual investor may be looking to purchase a shop in an under-construction commercial property, to reap the benefits of rental income in future.
- An entrepreneur with large funding may be looking to invest strategically in the ongoing large scale project of a real estate firm, for financing and purchasing a large block of shops in a large scale under construction commercial complex, so as to sell those later or open his own business in the premises.
The first scenario in each set has specific characteristics – specific individual needs, limited business exposure, limited investment amount, localized requirements, easy to evaluate single targets, limited potential targets, short term venture period, etc.
On the other hand, the second scenario in each set has different needs - a thorough and wide business exposure, large investments, long term strategic business plans, etc.
The first ones can easily be fulfilled by a local business broker (an individual or a small firm), who can present the list of saleable targets available immediately or in short term. The second ones represent more complex business requirements, and will need long term work, yet to be identified potential targets, and it suits the services of M&A advisory business firms. (Related: Investopedia explains Mergers and Acquisitions)
To differentiate between the two service providers - Business Brokers and M&A Advisors - let’s have a deeper look at their scope and offered services individually.
Differences between Business Brokers and M&A Advisors:
- Business brokers offer services centered around establishments which are relatively easy and simple to evaluate, while M&A advisors offer services around complex business transactions which may be difficult to evaluate.
- Brokers may be limited to providing only buyer-seller matching service, while M&A advisor's services extend further to transaction structuring, finance arrangement, executing specific tasks, providing outsourcing options, etc.
- Business brokers operate on small/local/regional scale and transactions usually involve single stand-alone businesses. M&A Advisors work on larger national (and even global) scales and transactions may involve complex business merging or sale spanning multiple locations
- Business broker assistance is limited in scope – a potential buyer will be presented with available sellers list as available within the reach of broker. M&A advisors work strategically with the clients which can involve starting completely afresh to scout for new targets for the business fit.
- Both service provides have different client profiles. Usually small firms, individuals (including entrepreneurs) will fit the client profile for Business Brokers. Large regional, national or global business M&A advisors cater to the needs of large organizations and firms, even governments and individual entrepreneurs (with deep pockets or those with potential for capital arrangement), for large scale projects.
- Business brokers work on sale as available, primarily targeting their commission on the deal value (usually a pre-decided percentage). M&A advisors too work on percentage payouts, but additionally get rewards for their specific engagement efforts, additional services arranged for (like rebated financing), taxation and legal services, etc.
- valuation methods used by business brokers are confined to current sales, location and profit numbers. M&A advisors valuation methods elaborate enough to include strategic potential, required investment, intellectual asset valuation and future potential.
- Business brokers role remains limited to the point of deal getting done. M&A advisors may work in continued engagements for extended period of time for successful implementation of the venture.
The Bottom Line
Selling, buying, or merging a business can make or break your business venture and career. Selecting the right advisor for your needs require a thorough evaluation, as it often gets confusing to select between business brokers and advisors. M&A advisors do offer much more comprehensive services, but come at additional cost. Business brokers can be an economical option, but are limited in scope and services. Considering the above mentioned points, a right fit for your business needs should be selected.