As mentioned in other posts, on average, it takes 7 months to sell a business. Why would any PROFESSIONAL and EXPERIENCED broker agree to do all the work up front (only getting paid when they sell the busienss)without a reasonable expectation that they will have the ability to earn their commission? The simple answer is they would not. Be wary of business brokers that will take a short listing, an open listing, or an over priced listing. Only they know the value of their time, which in those instances means it is not worth much!

I was involved in the sale ov my family business several years ago. We had 3 public companies interested in addition to other options.

It took several months and several rounds of negotiations to pick the company that offered the best combination of price, terms and corporate culture.

I am now a REALTOR and also offer to broker business transactions as well.
I find that when a commercial property or business goes fast, someone left a lot on the table or they did not take due diligence very seriously.

What should the seller be looking for? The first criteria is type of business. Generally, business brokers specialize in “Main Street” types of businesses such as dry cleaners, gas stations, restaurants, and convenience stores. M&A advisors specialize in more B2B types of businesses such as manufacturers, distributors, information technology firms, etc.

Size of Business – BB’s specialize in businesses under $1.5 million in revenues and M&A’s represent larger businesses or smaller businesses with a high component of technology or intellectual property.

The Targeted Buyer – BB’s are generally targeting individual buyers while M&A’s are seeking to locate corporate buyers.

Business Valuation – BB’s specialize in commodity type businesses that have “rule of thumb’ valuations that are consistently applied to arrive at a business selling price. There is usually a pretty narrow range of valuations applied to these businesses. M&A’s are recommended where there can be a broad interpretation of “strategic value” and rules of thumb do not apply. A high component of Intellectual Property, a unique niche, a hard to penetrate customer base are characteristics that can demand strategic value and purchase prices can vary widely.

Complexity of Transaction – BB’s are generally selling to individual buyers that have a finite approach structuring the transaction. The contracts are usually fairly straight forward and the negotiations focus on price, financing, and seller notes. For the M&A’s the targeted audience is the corporate buyer with vast experience in acquiring businesses. They employ both an internal legal team and outside council and make the purchase contracts quite complex. The number one goal is protecting the corporation. The contracts are 35 pages of complex legal language and schedules of reps and warranties. The seller will need someone that is familiar in navigating in that environment. Corporations generally send in a due diligence team that is well versed on finding every little wart in a seller company and will attempt to reduce transaction value during the process. The seller will need good advisors to offset these pros.

Exclusivity – because the BB’s are targeting individual buyers, their audience is vast so exclusivity is sometimes required and sometimes not required. Business sellers often engage multiple non-exclusive BB’s to insure the broadest coverage in presenting their business to the buyer audience. BB’s are often part of a network of BB’s to help broaden this exposure. Sunbelt Business Brokers and BBN are two very good networks.

M&A’s require exclusivity because they are targeting corporate buyers and the audience of potential buyers is finite. These corporate buyers have M&A departments or sometimes the president handles the process. If a target is presented to a corporate buyer by more than one professional the credibility immediately drops and the chance of serious interest is reduced significantly.

Up-Front or Monthly Fees – BB’s generally will charge a minor up-front fee to begin the engagement or have a simplified valuation completed. Generally there is no monthly fee charged. M&A’s generally charge either a substantial up-front fee or a monthly fee in the $3500 to $10,000 per month range depending on the size of the business.

Success Fees – BB’s generally charge a success fee of 10% of transaction value. M&A’s generally have a sliding scale based on the anticipated size of the business. The known Wall Street firms that sell the mega businesses will not touch a transaction where they are not guaranteed $1 million in fees. The big regional firms require at least $750,00. The M&A firms that deal in the lower end usually charge considerably less than that with a minimum or $150,000 cash at close. If your transaction value is in the $10 million range, count on paying your M&A firm $300K to $400K.

Conclusions – The deciding factor is in cost benefit. An M&A firm is going to cost a lot of money and you are going to be paying either an up front or monthly fees without a guarantee of success. If your business is smaller and is a commodity type business or Main Street business where the target buyer is an individual, an M&A firm will not add much value and is not worth the fee.

If your business is larger, complex, unusual, strategic, with a high component of intellectual property or technology and subject to a broad interpretation of value in the marketplace, an M&A firm is the right choice. In the final analysis, is a swing of 20% in your company’s selling price worth $5,000 per month for 8 months?

Any ideas for us Florida companies ?