As a business owner, chances are that at some point in the future you will consider selling all or a part of your company. Given this will likely be one of the most important transactions of your life, getting skilled counsel and guidance is a smart decision. Self-medicating on the sale of your company will typically lead to wasted money, time, and energy. But what type of advice do you need?
You will need legal counsel and will also benefit from having a good accountant to help you prepare your financials. You should also consider hiring an intermediary who specializes in taking companies like yours to market, telling your story in the right way, finding multiple buyers who will bid on your company, and who can successfully navigate your transaction to close. A good intermediary can help increase your sale price and navigate the inevitable mine fields you will experience to help get your transaction successfully across the finish line with a minimum of frustration.
These intermediaries can be business brokers, or they can be full-fledged investment banks. What is the difference?
The table below shows the major differences between a business broker and an investment bank:
|Business Broker||Investment Bank|
|Size of Deals Worked On||Typically less than $10M||Typically more than $10M|
|Retainers Charged||Either none or modest retainer||Either one-time up front fee ($50-100k) or a monthly retainer ($5-20k/month)|
|Fees Charged on Successful Sale||5-12% of total deal value||1-6% of total deal value|
|Size of Team Working on Your Deal||1-2 people||3-5 people|
|Industry Specialization||Typically None||Typically Have Extensive Experience in Select Industries|
|Quality of Materials Prepared to Present Your Company||Summary Level; Lower Quality||Professional Presentation and Detailed Preparation of Your Story|
|Due Diligence Preparation||Summary Level||Extensive Preparation (Reducing Odds of a Busted Deal)|
|Marketing Style||Posting Your Business as “For Sale” On Website or Calling Limited Number of Bidders||Will Prepare Customized List of Bidders and Reach Out Personally to Each|
|Types of Buyers Targeted||High Net Worth Individuals; Industry Buyers; Small Private Equity Funds||Private Equity Funds; Industry Buyers|
|Level of Support During Negotiations and Due Diligence||Typically Defer to Legal Counsel||Extensive Due Diligence and Negotiation Support|
|Risk of Confidentiality Issue (Someone Finding Out Your Company is For Sale)||Higher||Lower|
|Regulatory Licenses||None or a Real Estate License||SEC and FINRA Registered|
As you can see from the different factors, if your company is likely to be valued at less than $10 million, a business broker is usually the best course for you (smaller transactions will not capture the attention of an investment bank and their buyer pools will not be the best fit for you). Their fees prior to a successful closing will be lower than an investment bank’s fees (their transaction fees as a percentage of the deal will be higher), but you will receive a less bespoke experience than an investment bank would deliver. Likewise, if your transaction is likely going to be valued at more than $10 million, an investment bank will better suit your needs and will deliver a customized process that is intended to not only increase your sale price, but also ensure that your deal does not fail during due diligence.
Finally, most business brokers are not FINRA or SEC licensed as registered representatives. This can pose potential risks if your sale involves the sale of securities. You should talk with your attorney about securities regulations before hiring an unlicensed or unregistered broker of any type, whether they represent themselves as a business broker or an investment bank.
Chris Younger is the Co-Founder and Managing Director for Class VI Partners, a financial services firm focused exclusively on business owners. Chris spent more than 20 years gaining experience in executive management, marketing, sales, law and mergers and acquisitions. Chris was a co-founder and President of Expanets, the nation’s largest provider of converged communications solutions. Prior to Expanets, Chris was an associate with the law firm of Wilson, Sonsini, Goodrich and Rosati, and clerked for the Honorable Jesse Eschbach of the U.S Court of Appeals, Seventh Circuit.