The Difference Between Business Brokers vs. Mergers and Acquisitions
What type of advisor do you need to sell your business?
Selling your business is a time-consuming and complicated process, and you need a trusted advisor to guide you. The size and complexity of your business determine the type of advisor you need.
Many business sales require the services of a business broker. If you’re entering into a merger and acquisitions transaction, however, you’ll need an M&A advisor or M&A broker.
If you understand how business brokers and M&A transactions are different, you can find the right expert to help you close a sale.
Business brokers provide advice on smaller transactions.
Working with Business Brokers
Business brokers work on small to midsize businesses under $10 million.
Assume, for example, that you own three retail sporting goods stores that generate $4 million in sales. You’re 64 years old, and you’d like to sell the business and use the proceeds to fund your retirement.
In many instances, the seller has already decided to look for a buyer. The broker’s role is to use their industry knowledge and marketing efforts to find potential buyers.
You will meet with the broker to explain your business, and marketing strategy, and to review the financial statements. The broker uses the information to create marketing materials for prospects and identifies buyers who are interested in purchasing a retailer.
As the broker finds potential buyers, he or she can prescreen the prospects to determine if they have the resources to finance a purchase. This step helps the seller avoid spending time with unqualified prospects.
If a qualified buyer is willing to sign non-disclosure documents, the broker can start the due diligence process. Brokers help sellers gather the required documents for due diligence, and create a schedule to keep the process on track.
Brokers use metrics and online valuation tools to determine the business price. They analyze the sales of similar companies, and industry trends, and assess market factors. An experienced broker will know about recent retail business sales and the sale prices.
Your broker can also determine if the buyer is a financial or strategic purchaser.
A financial purchaser is interested in your firm’s ability to generate a consistent level of earnings and cash flow. Financial purchasers are not interested in making substantial changes to a business that already performs well. These buyers typically don’t pay a premium to purchase a business.
Strategic purchasers, on the other hand, may implement changes to improve financial results over time.
If the purchaser decides to move forward, the broker will negotiate the final price on your behalf. Brokers ensure that all required documents are signed at closing, and can help address any permits and licenses that are necessary.
A business broker will guide you through the entire sales process so that the transaction goes smoothly.
Larger transactions may require an M&A advisor or M&A broker.
Hiring an M&A Expert
M&A advisors work on larger transactions than business brokers. If the target business generates revenue of $10 to $50 million and higher, you’ll need an M&A advisor.
In this example, assume that you own a $12 million furniture manufacturer and that a larger firm wants to acquire your business.
An M&A advisor has a proactive focus regarding the structure and timing of a transaction, in order to add value. You may retain an advisor to help you consider options before you’re approached by a purchaser.
Advisors have a consultant focus, providing strategy and planning options for a potential seller. Your advisor will work to understand the buyer’s perspective on the transaction.
Assume that the potential buyer is a $50 million manufacturer that wants to add a furniture manufacturing division.
A strategic buyer purchases companies in order to grow an existing revenue source, or to diversify into new products and markets. These buyers are willing to pay a premium for a business that can help the combined firm increase profits.
The buyer may purchase the business for vertical expansion, or for horizontal expansion. In this case, assume that the buyer produces lumber and roofing materials, and wants to add furniture as a new product line.
You may consider selling a part of your business, rather than the entire company. If a buyer is interested in specific assets, you may sell those assets and continue operating. If the furniture business manufactures a unique line of coffee tables, for example, the buyer may purchase the assets for coffee tables and not the remaining components of the business.
To manage the complexity of the transaction, both the buyer and the seller typically have an M&A advisor.
You may also work with an M&A attorney, who can address the complex legal scenarios that make each M&A sale unique. The attorney will assess the potential legal issues of the various offers to acquire.
Manufacturers have legal issues related to product liability and worker safety, and your attorney can help address those issues. An equity sale will have a different set of legal issues than an asset sale. Attorneys also negotiate letters of intent and the final purchase agreement.
Your final step is to find the right advisor for your business.
How to Move Forward
Finding the right advisor depends on the size and complexity of the transaction. You may need the services of a business broker, or a merger and acquisitions advisor.
To start the process, meet with an expert to discuss your business and the potential sale.
Raincatcher has an M&A team with the background needed to work with large companies. They have experience managing the complex issues of large business sales. The firm also has a staff of business brokers who work on a variety of transactions.
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