Mergers and Acquisitions are finally emerging from the dark ages. Today’s middle-market CEO’s have more transparency into deal-related information and relationships than ever before. Successful investors and buyers proactively connect with CEOs to discuss opportunities/ peer networks and online platforms provide CEOs access to industry data and trends; and CEOs meet capital provider at industry events.

But what is the role of an M&A advisor?

In the past, an M&A brokers’ primary value-add was their access to the information and relationships CEOs needed to transact effectively. But that’s no longer the case.

To differentiate between the two service providers – Business Brokers and M&A Brokers – 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 typically referred to as Main Street Businesses, 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 also 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.
•  A business broker’s 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 broker for your needs require a thorough evaluation, as it often gets confusing to select between business brokers and M&A brokers. M&A brokers 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.

Portions of this post were published by Axial Forum and Dan Hanmaker in his post “How Advisors Add Value in the New Middle Market.”