M&A advisors are rapidly increasing in popularity, particularly among the lower middle market. Yet many owners have never heard of them.
A generation ago, M&A advisors more typically called themselves investment bankers because they preferred to associated with higher value businesses. But with more and more transactions in the $5-$30 million range, the median size of a company exit ranges from $12-$15 million. So more and more M&A advisors are appearing on the scene to support these transactions. Owners want professional advice to design exit strategies and prepare for the future. An M&A advisor is often the perfect person to do exactly this. Here’s what you need to know about this evolving field of experts.
How is an M&A Advisor Different from a Business Broker?
People who help sell companies valued at less than $5 million are often referred to as business brokers. M&A advisors fill a substantially similar role. However, because higher value companies often require more effort to sell and value, they tend to be more hands on in the transaction. This means that the primary distinction really centers around the different methods used to facilitate an exit.
When a business is valued at less than $5 million, a fully marketed transaction is rarely possible. With slightly higher budgets, an M&A advisor is empowered to identify 50-100 prospects, make a smaller list of 12-15 who sign a non-disclosure agreement, and then narrow the field to three or so bidders. While M&A advisors aim to create a competitive bidding environment, business brokers aim to market the business and sell it. There’s simply not enough time or money to do more.
Licensure is another factor. Business brokers are often licensed real estate brokers who also sell businesses. M&A advisors are rarely in the real estate business. Instead, they’ve focused their efforts solely on selling businesses, which makes them more sharply focused on the ins and outs of middle market exits.
Smaller main street transactions often include the property in which the company is based, so it makes sense to include a real estate expert. M&A advisors who are involved in these transactions typically enlist the assistance of a real estate broker. This enables them to continue focusing on the transaction while outsourcing the real estate to someone else—even when both are sold to the same buyer. It’s a more specialized process, and one that often garners a higher closing price.
Terminology Shifts for Larger Transactions
In higher value transactions—those ranging from $50 to $100 million—the terms M&A advisor and investment banker are used with similar frequency, and often interchangeably. This further confuses things for novice sellers.
Ultimately, seeking advice is about leaning on the expertise of someone who has done this many times before. It is this expertise that sets quality advisors apart from those who are just dabbling. So ask questions. Seek references. And trust your gut. Your investment in quality advice will be well worth it, and can ultimately drive up the sale price.
About Kratos Capital
Trying to manage a transaction on your own is a fool’s errand. The expertise of an advisory firm can help you better understand the other side’s motivation, and then challenge this knowledge into the best possible deal. As you navigate the process, partner with an M&A advisory team that boasts expertise in your industry. Kratos Capital can help.