Sell Your Business-How To Choose An Intermediary

When it's time to sell your business, choosing a professional intermediary to represent you during the transaction is one of the most important decisions. However, while all business intermediaries share one common goal, to help business owners maximize the value of their businesses during a sale, not all intermediaries are alike. Because the market environment in the lower, middle and upper market vary significantly, business intermediaries usually specialize in one market segment.

Today, business intermediaries are commonly classified as business brokers, mergers and acquisitions intermediaries or investment bankers. Depending on the market "bandwidth" they specialize in, each uses different methodologies to complement their expertise. Finding the right intermediary to help you sell the business will help you reach your retirement dreams.

Business Broker

Businesses with less than $1 million in annual revenues are typically referred to as lower-market or main street businesses. Represented by business brokers, these establishments are usually local service providers, such as dry cleaners or restaurants.

Business brokers typically handle numerous engagements, sometimes as many as 10 listings at once, because of the smaller commissions they receive from the smaller projects. With so many clients, brokers can only spend a limited amount of time with each client, limiting their marketing strategies to "listings" online. In addition, because of the low barrier-to-entry required in becoming a business broker, the educational backgrounds of these individuals may vary widely.

M&A Intermediary

Mergers and acquisitions intermediaries are advisers who operate in the middle-market range, companies with annual revenues between $1 million and $50 million. Handling only one or two transactions at once, M&A intermediaries have the ability to create detailed marketing materials and spend numerous hours with each client. In addition, due to the more complex structures of the larger projects, M&A intermediaries understand a wider array of financing options and can attract the attention of larger buyers, such as other companies or private equity groups.

Most M&A intermediaries receive their fees upon the successful sale of the business, but some may require a small retainer in the beginning to compensate for any work invested into evaluating, preparing and marketing the company. However, be wary of any firm that charges a large upfront fee. Reputable business intermediaries always collect the vast majority of their commissions by a scaled percentage formula after the sale.

Due to the complex nature of the larger transactions, most M&A intermediary will often ask the business owner to hire a team of professional advisers, including an attorney, an accountant, a financial planner, etc. This team of advisers, often referred to as the "deal team," will be the foundation of a successful sale.

Investment Bankers

Advisers operating in the upper-market are investment bankers. These business intermediaries serve businesses with annual revenues $50 million and up. Regularly networking with private equity groups and strategic buyers, investment bankers have expertise in marketing larger companies but they may be ill-equipped to handle smaller transactions.

Besides mergers and acquisitions, investment bankers also recapitalized, refinance and raise debt and equity capital for clients. When working with an investment banker, fees and commissions are negotiated depending on the terms in the contract.

Conclusion

A business intermediary is your representative throughout the entire process of selling your business. A good intermediary who understands your situation and works for you can help you find the most qualified buyer. Be sure to interview several candidates before selecting the one that has experience in handling your needs.