Home Industry News An Advisor Guide for Middle-Market Transactions

An Advisor Guide for Middle-Market Transactions


For those of you who have decided to sell your business or raise capital to grow, hiring someone to help execute on this strategic decision can be an excellent investment which will pay for itself many times over in the form of valuation, deal structure and terms. To save you time and arm you with the knowledge necessary to affect the best possible outcome, we’ve compiled a list of mergers and acquisitions advisor types.

Business Brokers

Who should hire a business broker:
Lower-middle market businesses:
<$25 million in annual revenue

Business brokers serve small companies. Their sale process is very similar to selling a home: A basic overview of the company might be written and distributed to interested parties or, in some cases, phone calls introducing parties is the only broker function. Brokers may list your business online. If you hire a broker, know the burden of the sale process falls almost entirely on you and your company.

• Great at handling small, straightforward situations such as tuck-in acquisitions.
• No up-front cost/retainer fees.
• Usually an abundance of business brokers are available for this part of the market.
• The percentage of the sale price, referred to as a “success fee,” is highly negotiable and varies widely (i.e. 1.0% to 10.0%).
• Some may work without exclusivity.
• Limited advisory and industry expertise.
• Higher risk of confidentiality breach.
• Risk for sub-par “story” communication, and exhibit a tendency to market firms to a limited number of established buyer relationships.
• Some may take a fee on both sides of the transaction, never actually aligning themselves with buyer or seller.
• Not an option for capital raises.
• Very time consuming for you and your management.

Generalist Investment Banks/M&A/Financial Advisory Firms

Who should hire a generalist firm:
Middle-market businesses:
$25 to $500 million in annual revenue

Companies in this size range hire investment banks to benefit from a banker’s deal-making expertise. These groups run a sophisticated and proactive process designed to create momentum towards a sale, and a closed, competitive auction, which maximizes confidentiality, valuation, deal structure and terms. A generalist investment bank develops high-quality marketing materials, which properly positions the company and articulate the opportunity. These advisors manage the burden of the sale process by bringing in qualified buyers, regulating buyer contact with management, and facilitating information flow, allowing business owners to focus on their primary task: running the business.

• Lower success fees which can range from 1.5% to 4.0% depending on the size of the deal.
• High-quality marketing materials.
• Better than a broker at articulating your story; position your business to maximize valuation, structure, and terms.
• Have a good feel for market valuations, terms, etc.
• Have strong relationships with financial buyers.
• Up-front retainer fees, which can run as high as $100,000.
• Smaller firms may not have international contacts.
• Larger firms will likely pass off your deal to a junior staffer.
• Very little industry-specific expertise.
• Can be subject to hitting quarterly goals internally for the amount of fees billed and number of deals closed.