Business Brokers and Mergers and Acquisition Firms

Do You Need a Business Broker or a Mergers and Acquisition Firm to Sell Your Business?
By Ney Grant, President Compass Point Capital, Inc. A business intermediary is a company or person that facilitates the transfer of business ownership from one party to another. Under this catch-all umbrella are real-estate agents, business brokers and Merger and Acquisition (M&A) firms.

"Main Street" business brokerage can generally be regarded as working with companies that are valued under $500,000, or with fairly simple transactions over $500K such as gas stations and grocery stores. There are "upper main street" $1 million dollar businesses, then lower mid-market $1 to $10 million in value and on up. There are major differences between these types of intermediaries and the companies they represent.

Business brokers can be characterized by:

1. Markets businesses mostly via businesses-for-sale websites
2. Sells companies mainly to private individuals
3. Financing expertise usually limited to SBA programs
4. Must represent quite a few businesses to make a decent living
5. Usually 10% success fee with no upfront fee

Mergers and Acquisition Firms can be characterized by:

1. Markets businesses mainly to other businesses by a variety of methods
2. Knows how to attract professional investors such as Private Equity Groups
3. Will usually create a more thorough "package" with analysis and writeup
4. Often will charge a retainer or consulting fee upfront
5. Usually has more experience with a variety of financing alternatives

In my business of selling businesses, I've seen multi-million dollar companies represented by business brokers that didn't know how to effectively market that type of company. I've also seen M&A firms neglect to consider that a company could be sold off the business-for-sale websites, which can be quite effective even for larger $20 million companies.

Are your adjusted earnings level approaching or above $250,000?

Company value is fundamentally dependent on earnings (well, future earnings to be exact). An adjusted earnings above $250,000 begin to be attractive to professional investors and other companies, and you definitely should have someone represent you that can engage with these types of individuals and organizations. (adjusted earnings is before taxes, interest, depreciation and adjusted for owner's benefit - a broker or other intermediary can calculate this for you).
Try:  An excellent reference for mid-market and "lower mid-market" M&A professionals is M&A Source and Alliance of Merger and Acquisition Advisors.  Look for the M&AMI credential, which means the intermediary has taken educational courses and has provided proof of completing multi-million dollar deals.  A newer organization is the Association of Professional Mergers and Acquisition Advisors.

Are your adjusted earnings well under $250,000?

If you have a business that isn't very complex, isn't growing like a rocket ship and has earnings well under $250,000, then a business broker would probably be an effective way to sell you business.
Try:  By far the best resource for finding business brokers is the International Association of Business Brokers (IBBA).   Look for a broker with the Certified Business Intermediary (CBI) designation.  It really does mean something, because the broker is committed enough to the profession to spend the time and money it takes to pursue the education to get that certification.

Are you rapidly growing, or have a unique business model?

Some business brokers have difficulty valuing, marketing and effectively representing companies that don't fit the standard mold. For example, you may have zero earnings but your growth and potential future earnings are significant. An intermediary that can analyze and find an appropriate suitor would be better than a "main street" business broker.
Try:  One trick is to go onto the larger business-for-sale sites and try to find a company similar to yours, then talk to that intermediary.  But always get references too!

These are some of the larger web sites of businesses for sale:

www.bizbuysell.com
www.bizquest.com
www.businessmart.com
www.mergernetwork.com
www.bizben.com (California only)

• When you do select an intermediary firm to work with, always ask for references from their last few transactions. A larger firm is really no better than the people you work with within that firm, so ask for references on deals THEY have worked on, not just the firm.