LUTZ BUSINESS INSIGHTS
What is an M&A Advisor?
DANI SHERRETS, FINANCIAL ANALYST
We are often asked: “What is an M&A Advisor, exactly?” “M&A Advisors” are consultants that represent business owners or entrepreneurs considering the sale or purchase of a business. M&A advisors and investment bankers are similar in their offerings. M&A advisors bridge the gap between the smaller businesses (typically less than $5 million in transaction value) that tend to be represented by a business broker and larger size deals (greater than $150 million in transaction value) that are led by big investment banks.
M&A advisors run an actively managed process focused on getting the best value and results for their clients. The pre-marketing stage frequently involves company assessment and valuation, due diligence and preparation of marketing materials (teaser, confidential information memorandum or CIM, management presentations, etc.). In the most visible portion of the process, the advisor “takes the company to market.” M&A advisors create a controlled auction environment and maintain a high degree of confidentiality throughout the entire process. M&A advisors also manage final negotiations of deals terms and structure.
How do “M&A Advisors” compare to “Business Brokers”?
Although the ultimate goal of both M&A advisors and business brokers is to help connect business owners with buyers, their services and processes are different. It is quite common that business owners are unaware of the differences between the two, or that they even have a choice. The main differences are:
Who do they represent?
M&A advisors represent owners of businesses from a variety of industries valued in excess of $5 million. Business brokers mainly represent businesses valued well below $5 million, such as daycares, beauty salons, single location restaurants, etc.
How do they attract buyers?
Most M&A advisory firms tend to operate more like a consulting firm. M&A advisors don’t advertise their engagements through web postings. They work with targeted pools of buyers who have demonstrated an interest in opportunities of the type and size being presented. Business brokers typically provide their services in a manner similar to real estate brokers, listing and advertising their businesses for sale through web postings or newspaper ads.
Who are their buyers?
Buyers of M&A advisor-represented businesses may occasionally be high net worth individuals but are more often other companies, private equity groups, and family offices. The buyers for the businesses represented by business brokers are most likely individuals.
What do their transactions look like?
Typically, M&A advisors have fewer engagements than the business brokers. Larger transactions tend to be more complex and require considerably more time. In contrast, business brokers tend to have more frequent engagements with smaller transactions.
What is the worth of the businesses they sell?
Businesses taken to market by M&A advisors have greater potential for being sold at higher valuation multiples. Businesses offered by business brokers rarely sell for more than four times cash flow.
What are their fees?
M&A advisory firms charge an upfront retainer fee ($10,000 to $50,000) and a success fee, ranging from 1.5% to 7% of the transaction value depending on transaction size and complexity. Business brokers will charge a commission ranging from 10% to 15% of the transaction value.
Lutz M&A is considered an M&A advisor. We would be happy to meet with any business owner to discuss their business exit planning process and assist them in choosing the right direction for their business.
ABOUT THE AUTHOR
DANI SHERRETS + FINANCIAL ANALYST
Dani Sherrets is a Financial Analyst at Lutz with over three years of relevant experience. She specializes in merger and acquisition advisory services and business valuation.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- National Association of Certified Valuators and Analysts, Member
- Certified Valuation Analyst
- BBA, Academy of Economic Studies, Bucharest, Romania
- MBA in Finance, Bellevue University, Omaha, NE
- How is COVID-19 Impacting the M&A Industry?
- M&A Transactions + Seller Equity Roll
- EBITDA Adjustments + 5 Expense Categories You Should Review
- The M&A Process + Timeline & Milestones
- 4 Common Reasons Why M&A Deals Fall Apart
- 3 Misconceptions of Selling to Private Equity Firms
- Types of M&A Buyers: Strategic vs. Financial
- 4 Benefits of Hiring an M&A Advisor
- What is an M&A Advisor?
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