Published on February 7, 2023
When it comes to selling a business, there are a number of professionals who can help you navigate the process. Two common options are business brokers and investment bankers. While these two types of professionals may seem similar at first glance, there are actually several key differences between them.
Scope of services: Business brokers typically focus on the sale of smaller, privately-held businesses. Think of main street businesses that are normally run by the owner. They may help with tasks such as preparing marketing materials, identifying potential buyers, and negotiating the terms of the sale. Investment bankers, on the other hand, typically work with larger companies and may be involved in a wider range of M&A (mergers and acquisitions) activities.
Fee structure: Business brokers typically charge a commission based on the sale price of the business. This commission is usually a percentage of the sale price, and may range from 5% to 10% (I have even heard of commissions going as high as 15% for smaller transactions). Investment bankers, on the other hand, typically charge a retainer for their services along with receiving a success fee, which is a percentage of the sale price (this also varies quite a bit based on the value of the transaction).
Process: Both may run a similar process of gathering information on the company, building marketing material, talking to buyers, managing the due diligence process, but a business broker normally runs more of a passive process, posting on websites and waiting for a buyer to come to them, whereas an investment banker usually runs more of an active process, working with their research team to find, and reach out to key targeted buyers based on their investment thesis.
Resources: Business brokers normally work as individuals on a project. The same person will create the marketing materials, do the outreach, and manage the process. An investment banker normally works on a team with people specializing in every step of the process. (With this, keep in mind, more resources but also more costs to the client).
Level of expertise: Business brokers generally have a good understanding of the process of selling a business and can provide valuable support to business owners. However, they may not have the same level of expertise as investment bankers, who typically have extensive training and experience in M&A. Investment bankers may also have a wider range of industry knowledge and can provide more specialized advice to clients and are used to dealing with more “complex” transactions.
Type of buyers: Business brokers may have relationships with a range of potential buyers, including individual investors and smaller businesses. Investment bankers, on the other hand, typically have access to a wider range of potential buyers, including strategic buyers, financial buyers, and private equity firms. This can be particularly useful for business owners who are looking to sell to a larger or more sophisticated buyer.
Overall, the main differences between business brokers and investment bankers are the scope of their services, their fee structure, and their level of expertise. Business owners should carefully consider their needs and goals when deciding which type of professional to work with. If you are considering selling your business, it may be worth exploring both options to determine which is the best fit for your needs.
*** The content is not intended to provide legal, financial or M&A advice. It is for information purposes only, and any links provided are for your convenience. Please seek the services of an M&A professional(s) before entering into any M&A transaction. ***
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Shawn Flynn is a Principal at Global Capital Markets, a premier middle-market investment bank with a global presence. Shawn has expertise in mergers and acquisitions, capital markets, financial restructuring, and secondaries. He speaks Mandarin and is the host of the award-winning Podcast The Silicon Valley Podcast. Connect with him on LinkedIn.
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