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M&A investment bank or a business broker?

March 21, 2022

Key Takeaways:

  • Engaging with proper representation when selling your business can make the difference between a successful and unsuccessful sale.
  • There is some overlap in services provided, though distinct differences exist between business brokers and M&A investment bankers.
  • Business brokers are more suitable for sub-$5 million transactions, given their limitations in the scope of services they can provide, while M&A investment banks are best suited for larger or complex transactions, requiring a “hands-on” approach.
  • Business brokers typically market the business for sale on websites, similar to how a real estate agent would list a home for sale, often with predetermined terms and price, while M&A investment banks act as a global market-clearing house, discovering the true value of a business beyond just the financials.
  • Business brokers typically hold state-issued real estate licenses, while M&A investment bankers are required to be federally licensed and regulated by FINRA which is overseen by the U.S. Securities and Exchange Commission.

Owning a business and deciding to sell is a life-changing decision and requires many considerations. Choosing proper representation can make all the difference when selling your company and is an important first step, leading to an often overlooked but important question – what is the difference between a sell-side mergers and acquisitions (“M&A”) investment bank and a business broker (“broker”), and which one should I use? Though the terminology is often used interchangeably and there is some overlap in the services provided, distinct differences exist between the two and typically cause confusion for business owners. Which choice is right for you largely depends on the size of your business.

Business Brokers

For smaller deal sizes, typically those valued under $5 million, such as restaurants, salons, and small franchises (often referred to as “main street businesses”), a broker is likely the right choice. Oftentimes working independently, brokers represent companies that are mainly sold to private individuals who plan to run the business themselves, rather than corporate or institutional buyers. Brokers typically market the business for sale on websites, similar to how a real estate agent would list a home for sale, often with predetermined terms and prices. Given the smaller transaction size and passive marketing approach, brokers are typically working with a larger number of smaller clients, limiting the amount of time spent with each deal.

M&A Bankers / Investment Banks / M&A Broker / M&A Advisors

For larger deal sizes, typically those valued at more than $10 million, a mergers and acquisitions investment bank is likely the right choice. M&A investment banks specialize in larger or complex transactions and businesses such as those in manufacturing, business services, technology, healthcare, and specialty products, where buyer outreach spans corporations and institutions across the globe. Given the larger transaction size, an M&A broker commits more time to fewer transactions and actively manages the process, direct marketing to and targeting appropriate and sophisticated strategic and financial acquirers, creating a properly timed, confidential, and competitive bidding environment. Further, M&A strategies work to position companies beyond just their financial standing, bringing attention to the synergistic and intangible benefits of the business, typically extracting additional value in the business valuation process. By providing such tailored strategy and planning options to potential buyers, interested parties are given a chance to holistically view all the benefits of acquiring a company, rather than just the monetary value.

Limitations of a Business Broker

Brokers are limited in the scope of services they can provide. In the United States, licensing of brokers varies by state, with some states not requiring any licensing. In those states that do require licensure, such as California, brokers hold real estate licenses. Holding a state-issued real estate license permits brokers to engage in a more limited set of activities within their jurisdiction and are particularly constrained around transaction structuring and buyer outreach. Further, in certain states, there is no restriction on brokers representing both the buyer and seller in a transaction – known as dual agents, leading to inherent conflicts of interest. In addition, a business broker mostly markets companies via businesses-for-sale websites with little to no direct prospecting to select buyer candidates.

In contrast, M&A investment banks are regulated at the federal level by the Financial Industry Regulatory Authority (FINRA) which is overseen by the Securities and Exchange Commission (SEC) and must adhere to stringent securities regulations. Investment bankers must be licensed by FINRA, which requires advanced knowledge of the financial and legal industry and passing of comprehensive examinations. Upon licensure, investment bankers are permitted to advise on and facilitate a wide range of financial and securities transactions, including M&A, giving greater flexibility towards targeting a broader buyer pool and transaction structuring. Further, licensed investment bankers are required to undergo continuing professional education on an annual basis to keep their licenses active. Unlike business brokers, M&A bankers help prepare their client’s business for sale and proactively position and promote their business to decision-makers at large well-capitalized corporations and private equity firms.

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About Persient

Not Just a Numbers Game

At Persient, M&A is our singular focus. We are a middle-market investment banking firm delivering creative, global take-to-market strategies for mature, profitable business owners ready to sell. Our mergers and acquisitions strategy goes beyond just your financials, ensuring the story of your business is properly told. We are different from other firms in San Diego and Southern California, providing a “hands-on” approach to all our clients – getting you from A to Z on your terms. Our M&A strategies do not solely focus on the financials and execution of your business. Your company’s intrinsic value is determined by utilizing a delicate business valuation process of both art and science, curating a compelling story of your business and all its assets.

Communication Matters

We at Persient leave no stone unturned when it comes to our clients. By reaching out to a multitude of buyers across the globe, such as Europe and Asia, our clients from San Diego County, Orange County, Los Angeles County, and beyond benefit from realizing the highest value for their business. The Southern California-based team provides a unique experience for each client, emphasizing an open-door policy with direct communication and facetime, creating genuine partnerships and meaningful value.

You and your business are important, and you can expect to receive the respect, sensitivity, and confidentiality that you deserve. Schedule an initial conversation about selling your business and what it takes to get top value. With Persient, you’ll never walk alone.

Investment banking services and securities offered through Independent Investment Bankers Corp., a registered broker-dealer, Member FINRA / SIPC. Persient LLC and Independent Investment Bankers Corp. are not affiliated entities. FINRA Broker Check.

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