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13 JUN BUSINESS BROKER VS. M&A INTERMEDIARY – EXTRACT

in General Business Brokerage by Russell Robb

The following is taken from the preface of Selling Middle Market Businesses: Guide Book for intermediaries by Russell Robb.

There is a movement afoot whereby business brokers are moving up-market from selling Main Street businesses to selling companies in the lower-end of the middle market, previously the exclusive domain of the M&A intermediary.  There is no precise definition of lower-end of the middle market as some people would clarify companies with sales between $5 to $100 million, while others would classify this category as companies with sales between $3 to $50 million.

There is a natural tendency for business brokers selling Main Street companies to move up market where the commissions are more lucrative.  It is as natural as real estate brokers who often start-off selling residential houses for $300-$500 thousand to move up-market to eventually sell multi-million dollar homes.  But, the game is played differently at these two levels, and the valuation methodologies are dramatically different between Main Street businesses and the middle market businesses.

Business Broker vs. M&A Intermediary

The following is a short list of highly abbreviated differences between a broker and an M&A intermediary.

Characteristics Broker Intermediary
Size of Business Sales $100k – 3M $3M-100M
Type of Businesses Retail Stores Manufacturers
Restaurants Distributors
Service Service
Documentation Minimal Extensive Offering
Brief Write-up Memorandum (30-50 pages)
Type of Buyers Mostly Individuals Strategic
Locals Private Equity Groups
National/International
Compensation Usually no Retainer Retainer
10-12% Commission Structured Commission
Minimum $150 to $500k
Sale Process Advertising Controlled Auction
Email Blasts Specific Time-line
Many Buyers Visit Seller Few Management Meetings
Firm’s Advantage Number of Seller Listings Specific Industry Focus
Duration of Contract 12 months 6 months then Renewable Thereafter
Confidentiality Extremely Tight Involve CFO & probably Sales Manager
After Hour Visits
Only Owner Aware
Financials Use of very limited figures Extensive Analysis
Past/future
Decision Maker Founder/CEO Founder/CEO and/or Board of Directors
Fees Around 10% Commission Scaled depending on size such as:
     4% on $10M deals and 1% on $100M deals
     with minimums of $150k, $200k or $500k, etc.