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Business Broker vs. M&A Advisor - Which One is Right for You?

Jonah Pollone

Sellers Seller Articles Seller FAQ

As a business owner, you may hear the terms “business broker” and “merger and acquisition (M&A) advisor” and wonder...

“What’s the difference? They both sell businesses, right?”

While it’s true that both sell businesses, there are some key differences that exist between the two. Choosing the right intermediary will give you the best chance at a successful outcome and, depending on the size of your business, save you hundreds of thousands of dollars.  

Through our 20+ years of selling businesses, we’ve seen the inner workings of both brokerages and M&A firms and how they serve their clients. 

Through this blog, we’ll pull back the curtain and give you a realistic look into what the differences and similarities are between business brokerage and M&A. 

After reading this post, you will have a clear idea of what each intermediary offers and which can provide you with the highest quality service for your business. 

Let’s jump in. 

What is a Business Broker? 

A business broker is a professional that sells “Mainstreet” businesses, a majority of which are less than $1 million in revenue.

Here are some general characteristics of business brokers: 

Staff: Most business brokerage offices are a single person. 

Listings: Successful business brokers tend to handle a large volume of listings. Firms with several business brokers may have 100 listings or more. However, statistics show they end up selling anywhere from 20 to 30 percent of the listings they take. 

Process: With the high volume of listings successful brokers take on, their process and marketing strategies are more templated. 

Price: They charge a commission and sometimes a retainer (successful brokers usually only charge commission, since they don't need money up front or on a monthly basis to keep the lights on).

Some brokers are the exception to the rule and only list what they believe they can sell. This method of doing business is our preference. If you want to sell your business through a broker, you'll have the highest chance of success if you use one who focuses on quality over quantity. 

There is debate regarding the cut-off point for what size of business a “business broker” sells. Some will say they sell companies with up to $1 million in revenue, which is the most common, whereas others say they can sell companies up to $10 million in revenue. 

Although some traditional business brokers have sold businesses earning $10 million in revenue, typically this doesn’t happen as larger deals require an advisory team working together with specialized knowledge. 

Quality business brokers will generally stick to selling businesses under $1 million in revenue since they take on a large number of listings. To learn more about business brokers and their fees, read our blog “What is a Business Broker? And What Do They Charge?” 

What is a Merger and Acquisition (M&A) Advisor?

Merger and acquisition advisors sell “middle market” businesses, ranging from $15 million to $100 million.

Here are characteristics of M&A advisors:

Staff: They have a team with specialized roles and knowledge. 

Listings: M&A advisors are selective about the deals they take in and only list what they believe will sell.

Process: They have sophisticated sales and marketing processes specifically designed to advertise high-value businesses for sale. They also have a deep network of private equity groups (PEGs), strategic buyers, and independent sponsors.

Price: M&A advisors charge a success fee and a non-refundable fee to produce the marketing materials

Even though M&A advisors provide more customized and professionalized services, they may not necessarily be the right fit for you if your company makes $15 million in revenue. 

MIDSTREET TIP

If you approach an M&A advisor to sell your company with $15 million in revenue, it may be a small deal in comparison to their $50 million and $80 million deals. This could cause your business to sit on the back burner while they work on larger deals.

So at this point, you may be thinking - “I have a company making between $1 million and $30 million in revenue and I want quality representation, but I am not sure if an M&A advisor is the correct fit.” 

Business Intermediary by Deal Size

The type of professional that covers the grey area between a broker and an M&A advisor is what we like to call a “MidStreet” advisor. 

Do People Use The Terms Broker and M&A Advisor Interchangeably?

People will use the terms interchangeably because most people know what a business broker is, but many people have not heard of M&A advisors. 

Since there is that grey area between a business broker and an M&A advisor, you may also find advisors whose services don’t match their title. 

In order to find the best professional to sell your business, assess whether they are qualified to sell a company of your size

The Differences Between M&A Advisors and Brokers 

There are five key differences between M&A advisors and brokers:

  • The size of companies they sell - M&A advisors sell middle-market businesses, whereas business brokers sell Mainstreet businesses. 
  • Their services - M&A advisors deal with complex documents/ negotiations and use a legal team, while brokers draft less complex documents and don’t usually have a legal team. These types of nuances make the M&A selling process more complicated than Mainstreet business sales. 
  • Their expertise - M&A advisors are governed by stricter rules than business brokers and are often more involved with stock sales. They are also usually more specialized in the industries they sell. As deals go up in size, expertise in the industry of the business being sold is important.
  • Their rates - M&A advisors often charge a flat fee for the detailed marketing materials they create, whereas brokers create basic marketing materials as part of their services. M&A advisors may receive a higher dollar amount of commission, but business brokers receive a larger percentage of commission on the sale.  
  • Their team - M&A advisors work as a team, while business brokers work either alone or with light administrative staff. Some business brokers employ other business brokers, but they typically don’t work on deals together. 

While there are differences between business brokers and M&A advisors, there are also some similarities.  

The Similarities Between Brokers and M&A Advisors

Business brokers and M&A advisors share the following four similarities:  

  • They sell businesses 
  • They work with business owners 
  • Their process of selling is similar 
  • They move deals forward 

The key to choosing between a business broker or an M&A advisor ultimately comes down to the size of your business and what level of services you need. 

Should You Choose a Business Broker or an M&A Advisor? 

With the knowledge of what price range business brokers and M&A advisors specialize in, you should have a clear idea of who you should choose to represent you. 

If you are unsure if you need an M&A advisor or a business broker to sell your business, you may need a MidStreet broker to represent you - brokers who bring the high-quality service of the middle market down to the "MidStreet," companies doing roughly $1 million to $30 million in revenue. 

Regardless of what level of intermediary you choose, you should pick one that closely aligns with your goals and has experience selling similar companies. 

To learn more about how to find the right broker for you, read our blog “What is a Business Broker? And What Do They Charge?” 

At MidStreet Mergers & Acquisitions, we help smaller middle-market businesses sell successfully by offering them M&A-level services. Contact us today to get started on selling your lower middle-market company.

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