Business sellers are frequently confused about the term "Business Brokers" vs. "Mergers and Acquisitions Intermediaries". In general terms Mergers and Acquisitions Intermediaries deal with larger businesses, generally more than $5M in value while Business Brokers focus on small and lower middle market businesses with less than $5M in company value. Below are some basic differences between the two very similar professions:
Fee Structure: Most Mergers and acquisitions Intermediaries charge a retainer, an amount that will be paid upfront whether the business sells or not. They charge these fees for two reasons: to pay for the upfront amount of time that is spent to prepare the company for sale such as business valuation, writing offering summary , marketing costs etc.. The second reason is to avoid that business sellers change their mind about selling. the retained works as a selection tool that weeds out most unmotivated sellers who simply taste the water.
Business brokers on the other hand do not charge any retainer. They get paid on a commission basis only and only when a business is sold. Business brokers try to qualify a business seller with an interview and decide whether to list the business or not depending on the perceived level of motivation. Business Brokers offer a much lower risk for the seller since if the business is not sold for any reason, the cost to the seller is minimal.
Business Sale Process: Business brokers and mergers and Acquisitions intermediaries have two slightly different processes. M&A intermediaries prepare a long and thorough brochure about the business called offering memorandum. They then identify potential buyers for the business (generally ;larger companies with some potential strategic interest and contact them directly). Finally M&A professionals organize a bidding process and ask for letters of intent from potential buyers. The selected buyer (generally the highest offer) is invited to meet the seller and investigate the business further during the die diligence phase.
On the other hand, Business Brokers write a much smaller summary about the business (generally one page teaser) and advertise it using the Internet, the newspaper and other media. Business brokers then interview potential buyers and qualify them. Buyers with financial capabilities, strung motivation and business expertise are them selected to meet with the sellers. Offers received from the buyer wity the best fit are then presented to the seller and negotiations are pursued to reach mutually agreeable price and terms.
Regulations: Generally depend on different states in the US and Provinces in Canada. Most US states require both M&A intermediaries and Business Brokers to be registered with Security Administration if the are involved in the sale of shares of businesses. In Ontario, Canada, both business brokers and M&A Intermediaries who are involved in the sale of assets must be registered real Estate brokers or Salespeople. This regulation is generally ignored by M&A professional who practice illegally. On the other side, the sale of shares of small businesses does not necessitates Real Estate registration if the intermediary/broker are registered with Ontario Security Commission.
While both M&A professionals and Business brokers can go a great job selling a middle market company, business owners should make sure the professional they are working with has the proper licensing to practice his/her profession.