3 Questions to Help You Decide Between an M&A Advisor and Investment Banker

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Although it doesn’t take much time on Google to find information on the differences between a business broker, M&A advisor, and investment banker, here is a quick recap for you to save you a search.

M&A advisors and investment bankers are similar in their offering. Both run a proactive process to sell your company that is highly structured and usually focused on creating a competitive and timed market for the seller. The goal of this process is to optimize the value of the transaction with the terms best aligned with the sellers’ goals. Many times, M&A advisors also act as intermediary between a buyer and seller to help both sides of the transaction, or they will be engaged to help a seller who has already identified their perfect buyer.

Business brokers, on the other hand, typically work with smaller companies and are more likely to sell that company to an individual or small corporate entity via an asset sale. They also use sites like: https://websiteproperties.com/ and https://www.bizbuysell.com/, where the business broker will list the company for sale and passively sit back and wait for a buyer.

For the most part, M&A advisors bridge the market gap between business brokers and investment bankers. They take a more active role in the sale of the company by first determining your value, helping you prepare for the process, finding buyers, and managing the process from LOI to close while helping negotiate the price and terms. Technically, M&A advisors are not allowed to negotiate price and terms due to SEC limitations, but they can advise on industry multiples and terms. Only investment bankers are truly able to “negotiate” price and terms.

While many people use the term “business broker” to lump all three into one category, they are all very different, as we can see by the table below:

Which Advisor is Right for You?

Hopefully, based upon the chart above, you can see for yourself which category of advisor will best suit you. But if you are still unsure, here are 3 simple questions you can ask yourself to help determine if you should use a Business Broker, M&A Advisor, or Investment Banker:

1. What do you expect your transaction value to be?

Transaction Value is determined by multiplying your Adjusted EBITDA times industry multiples. If you have had a few conversations with knowledgeable advisors/bankers in this industry, they can give you an idea of your multiples. The first line of the chart will give you a good indication of your right fit. If you need help determining this and are a technology service provider, head on over to our Value Maximizer Assessment and determine your value today.*

2. Do you need a lot of help getting ready for a sale?

Here is where you really have to look hard at who your advisor is.  Some M&A advisors don’t really have the talent on the bench to help you get your company ready, nor do they have the accounting expertise to help you properly state your gross profit margins. If you are already at $250M in value, you probably have the accounting expertise on staff or have an annual review done on your financials, in which case I would turn to an investment banker. A business broker will not be helpful in this area, but a good M&A advisor will be. Just look for one who will spend time with you in advance of going to market. Be sure to read my blog on this, where I give you specific questions you can use to help determine the right M&A advisor for you.

3. How many buyers do you want to reach? 

If you are in a very specialized industry (say life sciences, with a specific concentration in cancer vaccines) then you have a very distinct buyer reach. An investment banker who specializes in that industry may serve you better, as you will not only look in the US, but abroad as well. If your buyers are a little more generic (say technology companies or specific Private Equity groups who invest in IT firms), then you might find a better answer in an M&A advisor. That said, don’t pick an advisor that will “spray and pray”, either. Many advertise that they have a list of thousands of buyers, which doesn’t help you if they are not interested in your specific industry with your revenue amounts. You want to make sure that your advisor has targeted known lists of buyers in your industry and price range.  

Hopefully, this post has helped you understand the differences between these three different types of advisors.  If you would like to learn more about M&A terms specifically, I created a handy M&A Pocket Guide of the 40 most common words, acronyms, and phrases that you will see being used in the M&A world. 

* If you are interested in taking the Value Maximizer Assessment, you will need a code. Be sure to email us at engage@rosebizinc.com and put in the title of your email “3 Questions to determine the right advisor” and we will send you the code.