The main difference between M&A consultants and business brokers

You have found the right opportunity to buy someone’s business, sell your business, or merge with other businesses to obtain a profitable move. Before you continue, it is recommended to consult brokers and consultants who are considered experts in the field to find the best candidate for you. But what types of consultants exist in the market and what services do they provide? Service providers for such business-level transactions can be divided into two main categories: business brokers and mergers and acquisitions (M&A) consultants. Although they all operate in the same field and have similar characteristics, there are important differences between the two.

Business Case

Let’s start with two simple examples:

  • A certified mechanic who has recently completed a car training course hopes to buy a mature car repair shop in the local area to start his own car repair business. He plans to expand and hire more mechanics in his garage in the future.
  • An automobile company is seeking strategic investment with the goal of establishing a large multi-city network consisting of related garages under their own brand or franchise model. Their goal is multiple garages for sale, as well as those garages that can be persuaded to cooperate.

This is the second set of examples:

  • Individual investors may wish to purchase shops in commercial properties under construction to obtain rental income in the future.
  • An entrepreneur may wish to make a strategic investment in a large-scale project being undertaken by a real estate company to finance and purchase a large number of shops in a commercial complex under construction. The goal is to sell these products later or open their own business on the premises.
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The first scenario in each group has specific characteristics-specific personal needs, limited business exposure, limited investment amount, localization requirements, easy-to-evaluate independent goals, limited potential goals, and short-term venture capital periods . On the other hand, the second scenario in each group has different requirements-thorough and extensive business exposure, substantial investment, and long-term strategic business plan.

The first goal can be easily accomplished by local business brokers who can provide a list of available goals immediately or in a short period of time. The second represents more complex business needs, requiring long-term work, but the potential target has not yet been determined. This type of business requires the services of an M&A consulting company.

In order to distinguish between these two service providers-commercial brokers and M&A consultants-let us have a deeper understanding of their scope and the services they provide.

The difference between M&A consultants and business brokers

The easiest way to look at the difference between commercial brokers and M&A advisors is that commercial brokers operate on a small/local/regional scale, and transactions usually involve a single independent business. M&A consultants work in a larger country (or even globally), and transactions may involve complex business combinations or sales across multiple locations. The deal size with commercial brokers is usually between US$1 million and US$2 million, while M&A advisors handle multi-million dollar transactions.

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Customer Profile

Due to this different scale, the two service providers have different customer profiles. Usually, small companies and individuals (including entrepreneurs) will fit the client profile of a business broker. M&A consultants meet the needs of large organizations and companies, and even governments and individual entrepreneurs for large-scale projects that span multiple regions, countries or the world.

Valuation method

Because the scope and client profile of business brokers and M&A advisors are different, the skills required to promote their services are also different. Commercial brokers provide institution-centric services that are relatively easy and easy to evaluate, while M&A advisors provide services around complex business transactions that may be difficult to evaluate.

The valuation methods used by commercial brokers are limited to current sales, location and profit figures. The valuation methods of M&A consultants are very detailed, including strategic potential targets, required investment analysis, intellectual asset valuation and potential future growth.

Range of business objectives

The scope of assistance from commercial brokers is limited. The client will see a list of available sellers or buyers within the broker’s area. M&A consultants work strategically with clients, which may involve re-starting to find new targets suitable for the company.

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compensation

The compensation methods of the two are also different to a certain extent. Commercial brokers charge a commission (usually a predetermined percentage) on the value of the transaction. M&A consultants are also committed to paying by percentage, but their specific participation, arrangement of additional services, taxation and legal services will also receive additional incentives. The difference in value is the result of the range of long-term commitments. The role of the commercial broker is limited to completing the transaction, and the M&A advisor may continue to participate for a longer period of time to successfully implement the joint venture.

Bottom line

Selling, buying, or merging businesses can make or break your business ventures. Choosing the right consultant for your needs requires a thorough evaluation, because choosing between a commercial broker and a consultant is often confusing. M&A consultants do provide more comprehensive services, but they need to pay extra. Commercial brokers may be an economical choice, but the scope and services are limited. Considering the above points, you should choose the right person for your business.

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