Selling a business: Hiring a business broker or M&A advisor?

A business broker plays a central role in business brokera­ge by acting as an inter­me­dia­ry between the seller and the poten­ti­al buyer. However, he identi­fies poten­ti­al buyers and only takes care of the entire process of a transac­tion to a limit­ed extent. In this artic­le, we explain the diffe­ren­ces between a business broker and an M&A advisor, discuss diffe­rent remune­ra­ti­on models and highlight in which situa­tions the services of an M&A advisor may be benefi­ci­al and add important value.

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• Tasks of a business broker: prepa­ra­ti­on or at least coordi­na­ti­on of sales documents with the seller, procu­re­ment of buyers and, if neces­sa­ry, also the modera­ti­on of sales negotiations.
• Diffe­ren­tia­ti­on from a specia­li­sed M&A advisor: inter­me­dia­ry vs. advisor, specia­li­sa­ti­on in the process of a compa­ny sale, inter alia with a sound compa­ny valua­ti­on, exposé prepa­ra­ti­on and respon­si­bi­li­ty for the entire process up to the hando­ver, comple­men­ta­ry services.
• Why choosing an M&A advisor can be benefi­ci­al: Exten­si­ve exper­ti­se in process knowledge, objec­ti­vi­ty and indepen­dence, strate­gic advice.
• Pitfalls that can be avoided by choosing a specia­li­sed advisor: Inade­qua­te business valua­ti­on, failure to identi­fy poten­ti­al buyers, lack of experi­ence in negotia­ti­ons, incom­ple­te due diligence, lack of knowledge of legal requi­re­ments, delay­ed or failed transac­tions, lack of strate­gic direction.
• Remune­ra­ti­on via fixed price or commis­si­on: fixed price (trans­pa­ren­cy, no conflict of interest, predic­ta­bi­li­ty), commis­si­on (perfor­mance incen­ti­ve, lower finan­cial risk, proof of exper­ti­se), mixed forms of fee models.

Table of contents

What is a corpo­ra­te broker?

Distinc­tion from a specia­li­sed M&A advisor

Remune­ra­ti­on via fixed price or commission?

Why is the choice of an M&A advisor more advan­ta­ge­ous in many cases?

Pitfalls that can be avoided by choosing an expert advisor

Mixed forms of sales consultants

Conclu­si­on

FAQ - The most frequent­ly asked questions

What is a corpo­ra­te broker?

A business broker is an expert in business sales who specia­li­ses in bringing buyers and sellers together to start the sales process and connect interests. In essence, it is an inter­me­dia­ry who acts as an inter­me­dia­ry between the two parties.

Tasks of a corpo­ra­te broker:

1. Identi­fi­ca­ti­on of buyers: Business brokers have an exten­si­ve network and resour­ces to find poten­ti­al buyers who may be interes­ted in your business. This includes strate­gic inves­tors, indivi­du­als as well as priva­te equity firms and other interes­ted parties in the finan­cial inves­tor environment.
2. Negotia­ti­ons: If neces­sa­ry, the broker modera­tes the negotia­ti­ons between the entre­pre­neur and the poten­ti­al buyer in order to negotia­te the best possi­ble condi­ti­ons for both sides. Cauti­on is advised if both parties to the contract appoint a joint broker. Then mutual interests can arise. The possi­ble exper­ti­se for the imple­men­ta­ti­on of purcha­se review proces­ses, such as a DD (due diligence) the skilful modera­ti­on of all players, inclu­ding lawyers, can also be part of the tasks. This depends on the experi­ence and scope of services of a broker.
3. Comple­ti­on of the sale: Final­ly, the business broker accom­pa­nies you through the closing process or stays out of the negotia­ti­ons comple­te­ly. The parties concer­ned must settle this among themsel­ves in advance.

Distinc­tion from a specia­li­sed M&A advisor

The world of business sales can be confu­sing with various techni­cal and expert terms. One of the most common sources of confu­si­on is the distinc­tion between a business broker and a specia­list M&A (Mergers & Acqui­si­ti­ons) advisor.

Although both profes­sio­nals work in the transac­tion world and are close­ly related, there are crucial diffe­ren­ces between their tasks and focus. Find out here how a corpo­ra­te broker differs from a specia­li­sed M&A advisor:

1. inter­me­dia­ry vs. advisor: A business broker acts prima­ri­ly as an inter­me­dia­ry between buyer and seller. He has the task of searching for and presen­ting suita­ble buyers. If neces­sa­ry, he also takes on the role of modera­tor between the parties involved.

An M&A advisor, on the other hand, is a full-service provi­der and focuses on making strate­gic recom­men­da­ti­ons as early as the prepa­ra­ti­on stage, thereby optimi­sing the entire M&A process in advan­ce. While the compa­ny broker drives the transac­tion forward, the M&A advisor offers an all-round carefree packa­ge, which often begins with an analy­sis, conti­nues with a quali­fied compa­ny valua­ti­on and then perfect­ly concludes the prepa­ra­ti­ons for a sales process with an exposé as well as neutral teasers. Then the decisi­ve sales phase begins.

2. specia­li­sa­ti­on: A business broker specia­li­ses in broke­ring the sale of businesses. He has an under­stan­ding of the process and usual­ly has an exten­si­ve network of poten­ti­al buyers.

A specia­li­sed M&A advisor, on the other hand, may focus on a broader range of M&A activi­ties, inclu­ding mergers, acqui­si­ti­ons, capital raising and strate­gic advice. This means that M&A advisors typical­ly offer a broader range of services and are process advisors in depth.

3. focus on transac­tion execu­ti­on: The main focus of a corpo­ra­te broker is to successful­ly broker the sale of the business. He works with the parties to ensure that the sale goes smoothly.

A specia­li­sed M&A advisor, on the other hand, can take on a strate­gic role that goes far beyond mere transac­tion execu­ti­on. He helps identi­fy oppor­tu­ni­ties, evalua­te compa­nies and develop M&A strate­gies. It is a coach, facili­ta­tor, media­tor and ‘inter­pre­ter’ as well as advisor all in one.

4. comple­men­ta­ry services: It is important to note that corpo­ra­te brokers and M&A advisors are not neces­s­a­ri­ly mutual­ly exclu­si­ve. In fact, in many cases they can work together to achie­ve the best possi­ble benefit for the client.

For examp­le, a business broker may bring in an M&A advisor to deliver strate­gic benefits to the sale process. This coope­ra­ti­on can help to optimi­se the entire M&A process, but is rather rare.

Remune­ra­ti­on via fixed price or commission?

When selec­ting a corpo­ra­te broker or an M&A advisor to assist with the sale of a business, it is important to consider not only which expert best suits the needs at hand, but also how the services of these profes­sio­nals will be remune­ra­ted. The questi­on of remune­ra­ti­on, whether via a fixed price or a commis­si­on, is crucial and should be careful­ly conside­red. Here we take a look at the advan­ta­ges and disad­van­ta­ges of both remune­ra­ti­on models:

Fixed price:

Remune­ra­ti­on via a fixed price is a clear and prede­ter­mi­ned payment to the chosen expert, regard­less of the outco­me of the transac­tion. Let’s say a fixed price of 30,000 euros was set to use the services. Regard­less of whether the compa­ny is ultim­ate­ly sold for 0.5 milli­on euros or 1 milli­on euros, the payment remains the same. This model has its own advantages:

• Trans­pa­ren­cy: From the outset, it is known exact­ly how much the services will cost, which enables better budget planning and, depen­ding on the scope of services and durati­on, the seller is on the safe side
• No conflict of interest: As the remune­ra­ti­on is indepen­dent of the sales result, there is no conflict of interest between the client and the service provi­der. The interest in getting the best price for the compa­ny may not be quite as strong as with a success variant.

Commis­si­on:

Remune­ra­ti­on via a commis­si­on means that the expert recei­ves a percen­ta­ge fee on the sales price. Let us imagi­ne that the compa­ny is sold for 2 milli­on euros and the service provi­der recei­ves a commis­si­on of 5 % on the sale price, which corre­sponds to 100,000 euros. In this case, the remune­ra­ti­on depends direct­ly on a successful sale. This model also has its own advantages:

• Perfor­mance incen­ti­ve: The expert has a strong incen­ti­ve to achie­ve the highest possi­ble sales price for the compa­ny, as his remune­ra­ti­on depends direct­ly on this price.
• Lower finan­cial risk: It is only paid if the sale actual­ly takes place, which reduces the finan­cial risk if the transac­tion fails for any reason.
• Exper­ti­se evidence: If advisors or brokers are willing to work on a commis­si­on-only basis, this may indica­te confi­dence in a successful transac­tion, or it may indica­te strong pressu­re from the broker to succeed.

Mixed forms of fixed price and commission:

For sellers of compa­nies, this model is parti­cu­lar­ly relia­ble and secure. The indivi­du­al steps in the entire sales process are priced in advan­ce and only invoi­ced if a proper parti­al delivery of the promi­sed service has been made.

In additi­on, the expert recei­ves a commis­si­on if successful and then offsets the upfront costs against the commis­si­on (there is often a minimum commis­si­on as a lower limit).

In this way, the seller does not pay anything twice and can fairly and trans­par­ent­ly track success with his expert in payment when targets are reached.

Why is the choice of an M&A advisor more advan­ta­ge­ous in many cases?

In the complex task of selling a compa­ny, choosing the right specia­list is crucial. In this respect, the questi­on arises: when and why might the engage­ment of an M&A advisor be the better choice over other options such as compa­ny brokers or self-selling? This conside­ra­ti­on requi­res a detail­ed analy­sis of the speci­fic requi­re­ments and objec­ti­ves of a business sale, and it turns out that M&A advisors can play a benefi­ci­al role in many cases.

Specia­li­sed exper­ti­se: M&A advisors specia­li­se in the complex nuances of mergers and acqui­si­ti­ons. Their exten­si­ve knowledge of the M&A market, abili­ty to identi­fy poten­ti­al buyers or sellers and strate­gic approach to the entire transac­tion process are valuable resour­ces. This exper­ti­se can help create optimal condi­ti­ons and opportunities.

Objec­ti­vi­ty and indepen­dence: M&A advisors usual­ly opera­te independent­ly and objec­tively, without being invol­ved in conflicts of interest. This impar­tia­li­ty allows them to act in the best interest of the client and focus on achie­ving the best results. This is in contrast to poten­ti­al conflicts of interest that could arise in other remune­ra­ti­on structures.

Strate­gic advice: M&A advisors often offer much more than pure transac­tion services. They can provi­de strate­gic advice and analy­sis to ensure that the sale process is in line with the company’s long-term goals. This additio­nal perspec­ti­ve can make the diffe­rence between a simple sale and a strate­gi­cal­ly valuable transaction.

Choosing an M&A advisor is not the only option in every case, and indivi­du­al requi­re­ments in the sale of a compa­ny may vary. Nevert­hel­ess, close analy­sis shows that specia­li­sed exper­ti­se, indepen­dence and strate­gic advice can in many cases create clear added value for the compa­ny. However, the decis­i­on should always be based on a thorough evalua­ti­on of the company’s speci­fic needs and goals.

Pitfalls that can be avoided by choosing an expert advisor

1. inade­qua­te compa­ny valua­ti­on: Accura­te­ly valuing your business is criti­cal to setting an appro­pria­te selling price. An M&A advisor has the knowledge and resour­ces to conduct a sound valua­ti­on to ensure that your business is offered at a reali­stic market price.

2. lack of identi­fi­ca­ti­on of poten­ti­al buyers: Finding suita­ble buyers can be a chall­enge. M&A advisors have an exten­si­ve network and can identi­fy and target poten­ti­al buyers, inclu­ding strate­gic inves­tors and priva­te equity firms. Pre-selec­tion matters and not just any prospec­ti­ve buyer will be presen­ted. This could even be a securi­ty risk.

3. lack of experi­ence in negotia­ti­ons: Negotia­ting the sale price and the terms of the contract requi­res exper­ti­se and experi­ence. An M&A advisor specia­li­ses in successful­ly conduc­ting negotia­ti­ons and ensuring that your interests are protected.

4. incom­ple­te due diligence: Thorough due diligence is crucial to identi­fy poten­ti­al risks and issues before it is too late. M&A advisors assist in provi­ding documents and infor­ma­ti­on to ensure that due diligence goes smoothly.

5. lack of knowledge of legal requi­re­ments: The legal frame­work for compa­ny sales can be complex. An M&A advisor works close­ly with lawyers to ensure that all legal requi­re­ments are met and the sale process runs smoothly.

6. delay­ed or failed transac­tions: Without experi­en­ced leader­ship, transac­tions can stall or even fail. An M&A advisor specia­li­ses in overco­ming obsta­cles and ensuring the transac­tion is comple­ted. And he can still get a better price in the end, even neutra­li­sing his costs for the seller.

7. lack of strate­gic direc­tion: A successful business sale should fit into the long-term goals of the compa­ny. An M&A advisor provi­des strate­gic advice to ensure that the sale process supports the company’s long-term vision.

8. misma­nage­ment of confi­den­tia­li­ty: Maintai­ning confi­den­tia­li­ty is criti­cal to keeping the business running during the sale process. M&A advisors have best practi­ces to maintain confi­den­tia­li­ty and protect infor­ma­ti­on from unwan­ted leaks.

Mixed forms of sales consultants

There is no one-size-fits-all soluti­on in the field of corpo­ra­te sales, as the needs of compa­nies can vary. Blended sales advisors are flexi­ble and custo­mi­sable approa­ches that combi­ne diffe­rent services to create tailo­red soluti­ons for clients. These hybrid models can combi­ne elements of corpo­ra­te brokers, M&A advisors and other profes­sio­nals. Examp­les of hybrids are:

• Advice from M&A advisors with a commis­si­on-based approach: Here, an M&A advisor provi­des strate­gic advice and transac­tion support and retains an incen­ti­ve by linking part of the remune­ra­ti­on to the successful comple­ti­on of the transaction.
• Business broker with exten­ded services: Some business brokers offer additio­nal services, such as due diligence support or strate­gic advice, to provi­de more compre­hen­si­ve support to their clients.
• Transac­tion advisor with a long-term focus: These advisors develop long-term relati­onships with their clients and work not only on indivi­du­al transac­tions but also on long-term strate­gic goals, such as identi­fy­ing acqui­si­ti­on opportunities.

Conclu­si­on

A business broker and a specia­li­sed M&A advisor play diffe­rent but crucial roles in the process of selling a business. The broker acts prima­ri­ly as a business inter­me­dia­ry and focuses on transac­tion execu­ti­on. M&A advisors, on the other hand, bring in-depth exper­ti­se and strate­gic advice to the process in order to achie­ve optimal results in an all-round carefree package.

The choice of remune­ra­ti­on struc­tu­re ? whether fixed price or commis­si­on ? depends on indivi­du­al prefe­ren­ces, budget and business objec­ti­ves. For more complex sales proces­ses, engaging an M&A advisor may be more advan­ta­ge­ous as, in additi­on to valua­ti­on and buyer identi­fi­ca­ti­on, they can provi­de compre­hen­si­ve support in negotia­ti­ons, due diligence and legal requirements.

FAQ - The most frequent­ly asked questions