How to Find the Right Advisor to Sell Your Company
When it’s time to monetize your life’s work by selling your company, don’t go it alone. While no one knows your unique company better than you, selling a company is much different than growing and running one. Selling a company involves an overwhelming amount of financial experience, diligence, analysis, marketing, communication and expertise — not to mention the complexities of navigating the legal, securities and tax implications.
In order to get the best valuation and terms when selling your company, it’s crucial to have the right advisor on your side.
There are two main types of advisors that specialize in selling companies: business brokers and investment bankers, also referred to as M&A advisors. While they may seem similar (and their titles are sometimes used interchangeably at the smaller end of the market), business brokers and investment bankers vary greatly in the expertise and services they provide and the experience and solutions they offer to company owners.
Below, we explore the difference between business brokers and investment bankers across several categories in order to help you determine which advisor is right for your M&A transaction.
Business brokers have one objective: publicly listing your company for sale, waiting for offers and helping you close the deal. However, the process of getting top dollar for your founder-owned company should include a full suite of confidential options. Qualified investment bankers and M&A advisors can provide other options, confidentiality and services related to the sale of your company, including partial sale options such as minority or majority recapitalizations, management buyouts, employee stock ownership plans (ESOPs) and other specialized ways to sell your company.
A select group of investment banks like Bridgepoint Investment Banking can also raise capital and arrange financing and structured liquidity options that may be crucial to the successful sale of your company or to help you pursue other alternatives to an exit.
Business brokers are best suited for straightforward, 100%, widely-marketed transactions involving smaller companies, generally for less than $10 million of total enterprise value. For anything larger and more complex, company owners should engage investment bankers and M&A advisors. These advisors can better appeal to buyers by making stronger, more specialized cases for potential acquisitions. They are capable of more advanced diligence and analysis, more complex valuations, appropriate buyer relationships and leverage and showcasing the unique features of your company.
Working with a business broker requires more involvement from the company owner. Business brokers provide minimal analysis, consulting and advice. In fact, the analysis of financials and preparation of relevant deal marketing materials are often done by the seller, which can result in extensive effort, increased liabilities to the buyer and seller and a greater risk of the transaction falling through.
Investment bankers and M&A advisors take a more advice-driven, consultative, white-glove approach that includes higher levels of diligence, analysis and preparation with minimal effort required from the seller. Investment bankers and M&A advisors will maximize the outcome of the process by performing professional analysis and creating effective marketing materials for your transaction. Selling your company with the help of an investment bank or M&A advisor will include extensive market research, the use of multiple valuation methods and modeling scenarios, professional marketing tactics and proactive buyer outreach, strong and objective negotiations, and improved anticipation and removal of barriers to closing the deal. These advisors may also provide additional services such as valuation opinions, deal structuring advice and advanced analysis.
Investment bankers and M&A advisors are specialized in assisting companies with annual revenues of $10 million or more, EBITDA of $3 million or more and/or an enterprise value of $10 million or more. For smaller companies whose EBITDA is within the range of $500,000 to $2 million, a business broker may be a better fit.
Investment bankers and M&A advisors are well-connected with corporate and institutional buyers, including strategic buyers, private equity firms and family offices, whereas business brokers are generally limited to buyers who are individuals.
When it comes to the pool of potential buyers, optionality is key — this applies to both the amount and types of potential buyers. Business brokers are generally limited to local and regional buyers and wait for offers to roll in after posting the company. In contrast, investment bankers and M&A advisors have access to local, regional, national and even global buyers and take a more proactive approach to soliciting offers from optimal buyers. Investment bankers and M&A advisors tend to have deep industry expertise rather than being generalist, which helps them to better understand the nuances and differences between appealing to the unique value drivers and approaches of selling to financial buyers compared to selling to strategic buyers.
Business brokers tend to take a “spray and pray” approach to buyer outreach, similar to that of a real estate agent. Like a real estate transaction, business brokers will post a specific listing price for the business, which can impede a maximum outcome. Selling a company takes more than simply listing your business and waiting for offers. Investment bankers and M&A advisors take a more proactive, selective, strategic and targeted approach to buyer outreach. The targeted nature of this approach helps prioritize confidentiality, a crucial element in a successful sale process. Further, investment bankers guide a competitve auction, forcing buyers to provide value indications as opposed to offering a list price. Competitive tension drives value.
Another important factor is timing: time kills deals, and the efficient and proactive nature of a process run by investment bankers and M&A advisors gives your transaction a better chance of success. Qualified investment bankers and M&A advisors know how to enter the market with the advance preparation and strategy required to maximize the success of your transaction.
Investment bankers and M&A advisors are in tune with market trends, macroeconomic factors, industry dynamics, valuation trends and drivers, potential tax impacts and other factors that influence the sale of your company. Business brokers tend to be limited when it comes to industry specialization and advanced knowledge of the market, valuation drivers, macroeconomic trends and tax-related factors. In contrast, investment banks tend to bring deep industry expertise that can directly impact the terms of a transaction.
Business brokers specialize in valuing companies that are relatively simple and straightforward to value and their valuation methods generally rely only on components such as current location and basic financial metrics like sales and profit.
For companies that are more complex to value, investment bankers and M&A advisors are skilled at using valuation methods which can factor in metrics beyond the basic financial metrics. These factors include intellectual property, future potential growth, value drivers that may appeal to specific strategic buyers and other valuation methods.
Investment bankers and M&A advisors can tell your company’s story in a much more holistic manner so that buyers understand the true value of acquiring your company.
Your relationship with a business broker will likely begin and end with the sale process. In contrast, your relationship with an investment banker or M&A advisor will be a long-term relationship focused on providing strategic advisory and accomplishing your unique goals beyond the sale process. A relationship with a trusted M&A advisor will be more active, consultative, strategic and driven by giving you the right advice.
Licensure & Qualifications
Business brokers are less likely to be licensed with FINRA than investment bankers and M&A advisors. While FINRA licensure may not be required to complete your transaction, working with a licensed and registered investment banker can protect you and your company from risks associated with the sale of your company.
Finding the Right Advisor to Sell Your Company
When you’re ready to sell your company, give your company the best chance of success by working with a trusted investment banker.
Bridgepoint would appreciate the opportunity to find the right buyer for your founder-owned company, maximize your proceeds and carry on your company’s legacy.
Explore your options by contacting us today.
Not sure if you are ready to sell? Check out our complimentary guide to exit alternatives and other ways to gain personal liquidity without selling your company.