On the first part of our mergers & acquisitions series, we discussed the differences between a stock and an assets sale, and how buyers can choose between one or the other.
On this installment, we’re looking at the differences between a Mergers & Acquisitions broker and an M&A advisor.
Using the terms interchangeably is a disservice and may lead to confusion. While they can both help you with the sale of your business, the size and valuation of your venture will ultimately decide which professional is adequate for you.
According to the Securities and Exchange Commission, an M&A broker is a person engaged in the business of effecting securities transactions solely in connection with the transfer of ownership and control of a company during the sale of a business, whether the sale is of securities or of assets of the company. [emphasis added]
The scope of their services are very limited: while they can provide an estimated valuation based on similar businesses in the area, you may need a more thorough evaluation.
If you have a smaller business that won’t require much of a hassle to sell, a broker can be a viable option. However, make sure the prospective broker has actually sold businesses similar to yours. The whole point of hiring a professional is to hand over the process to someone who is experienced enough to understand the nuances involved in the sale.
One big bonus of hiring a broker is that they only get paid if your business sells; so both you and the broker will have the same end goal in mind.
An M&A advisor will do a comprehensive financial analysis and help you design an exit strategy for selling your business. If you are facing a complex transaction, you’ll want someone to structure the sale. The advisor can also prepare a pitch book, delineating everything that would make your business attractive to prospective buyers.
Often, entrepreneurs know they need the help, but may desist from hiring an M&A advisor because, contrary to a broker, the advisor usually requires a substantial retainer fee. This is due to the amount of time they will spend studying your financials and crafting the best strategy for the sale.
If you decide to do it on your own to bypass costs, you’ll be (a) going into a complicated situation without the adequate tools an experienced M&A advisor would have, and (b) you would be doing so at the expense of taking time away from your business operations. This may result in lower profits; which may ultimately detrimentally affect how much you’d get for your business when selling it.
If your business makes over $1,000,000 in annual profits, it would make more sense to hire an M&A advisor. He or she will be instrumental in obtaining the maximum market value for your business.
Both will help you find buyers. Both will keep the process confidential. And regardless of which professional you hire, you’ll also need an experienced business attorney to prepare and review all of the transaction documents. Hunter Business Law can help you to ensure all of your interests are safeguarded.
This Blog was written by Hunter Business Law Founder, Attorney Sheryl Hunter. View her profile HERE.
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