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What is an M&A Advisor?

by Basil Peters on January 8, 2013 · 12 comments

What is an ‘M&A Advisor’? Why haven’t you heard the term more often?

One of the speakers at a recent Exit Strategies workshop in Vancouver (a well-respected senior M&A lawyer) commented that up until a couple of years ago he’d rarely heard the term ‘M&A Advisor’. He went on to explain that while there were certainly professionals helping to execute exit transactions, they didn’t often describe themselves as ‘M&A Advisors’.

At this same workshop, an attendee asked: “What is an M&A Advisor, exactly?” When I didn’t have a crisp off-the-cuff answer, I started to think about writing this article.

In my travels throughout North America, I’ve noticed that the use of the term ‘M&A Advisor’ varies considerably from region to region. In the northeast, people often use the term ‘investment banker’ – or ‘i-banker’; which is still the pervasive Wall Street-centric term for someone who helps sell a medium or large-sized company.

The farther you get from Wall Street, with the exception of possibly downtown San Francisco, the term ‘investment banker’ seems to be falling out of favor. I think this might be related to the negative publicity associated with the damage done to the global economy by the investment bankers who sold mortgage-backed securities. M&A Advisors I’ve spoken to seem to be distancing themselves from the term ‘investment banker’ as a result.

The term ‘M&A Advisor’ is also gaining popularity due to the increasing number of exit transactions in the $5 million to $30 million range. Just a decade ago, most of the press, and discussion, about exits focused on much larger transactions. Today, it’s increasingly obvious that the vast majority of transactions are in the under $30 million range, and the median size of private company exits is probably in the $12 million to $15 million range. As M&A activity shifts to these smaller and mid-sized transactions, more and more companies are looking for professionals to help design exit strategies and execute exit transactions in this size range. The term that is most often used to describe the professionals working to help sell this size business is ‘M&A Advisor’.

How does the term ‘M&A Advisor’ compare to the term ‘business broker’?

Professionals involved in helping to sell companies at values below $5 million are most often described as ‘business brokers’. I’ve been conducting an informal survey of professionals across the country to see if the use of that term also varies regionally. ‘Business broker’ seems pretty consistently applied for transactions below about $5 million in value.

When the definition of ‘business broker’ is discussed, people often say that business brokers facilitate ‘main street’ transactions. By that, they’re usually referring to the large number of smaller sized businesses including everything from restaurants, dry cleaners, retailers and all of the various forms of small service companies.

One of the primary distinctions between a business broker and an M&A Advisor actually does relates to the different methods used to facilitate exits below the $5 million in size. At valuations below $5 million, it’s not usually possible to do a ‘fully marketed’ transaction – one in which a team of professionals might identify as many as 50 to 100 prospects, qualify that list down to 12 to 15 who sign an NDA and then ideally end up with three bidders near the end of the transaction.

Most of the time, in business broker size transactions, there isn’t a competitive bidding process simply because these lower transaction sizes (and therefore fees) can’t justify that much front-end investment in the sales process.

Another important distinction between the popular use of the term ‘business broker’ compared to the term ‘M&A Advisor’ is the fact that business brokers are often licensed real estate brokers. In my experience, M&A Advisors almost never have real estate brokerage licenses. Many main street transactions include the property on which the business is based. The owners usually want to sell the business and the property together. If an M&A Advisor is involved in a transaction that includes a real estate component, they would usually separately engage a real estate agent to facilitate the real estate portion of the transaction – even if both are being sold to the same buyer.

The terminology also changes for much larger transactions

For exits over $50 or $100 million in value, the terms ‘M&A Advisor’ and ‘investment banker’ are used with approximately equal frequency.

There is currently no absolute answer to the question of “What is an M&A Advisor?” but I hope this article provides enough of a definition for general use anywhere in North America.

Please post a comment below if this differs from your experience on the use of these terms. Thanks, Basil.

{ 12 comments… read them below or add one }

Paul Cronin January 10, 2013 at 5:44 am

Great post! I agree with your analysis: M&A is for lower middle market companies, I-Banker is for large companies and business broker for under $5 million. I will also tweet this and post to our Facebook and LinkedIn pages. At Successful Transition Planning Institute, we help owners of small to middle market companies conduct “personal due diligence”, so that they have a bright future to look forward to, after they leave or retire from the business. Owners who don’t plan properly, risk suffering from “seller’s remorse”, or even PTSD – Post Transaction Stress Disorder.

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Basil Peters January 10, 2013 at 9:07 am

Thanks for the positive feedback, Paul.

I really like your definition of PTSD.

Thanks also for the tweet and posts.

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Arthur Klein January 11, 2013 at 10:36 am

Hi Basil,

I’d agree with most of your assessments here. At Pacific (Pacific Business Brokers & Pacific Mergers + Acquisitions) the role (business broker, advisor or intermediary) really comes down to the ‘typical’ size and nature of the offering and related transaction.

Often mainstreet business sales, to your point, will:
- not have pre-identified buyers
- commissioned based success fees
- business value of $3M or less (this figure is highly dependent on business type, market position)
- may or may not have real property (assets held) as component of business value; typically a property lease

On the M&A side, yes you will see targeted marketing to key prospects and either bidding or outright offers (LOI or OTP) being presented. And the transaction will either be retainer based, or a modified retainer and success fee.
The only thing I would suggest that is not consistent, is how real property is transacted on an M&A deal. At Pacific, as we serve both mainstreet and lower middle market enterprises, we hold commercial real estate licences and are able not only to assess the real property, and are able to facilitate related transaction in compliance to Real estate act. The RE component on a lower middle market deal may be a significant element to the strategic or synergistic acquirer, and the advisor selected by the buyer should have significant experience here in this regard (licensed or otherwise).
In addition, the M&A advisory firms that we have worked with, the advisors present typically hold RE designations.

For more information on M&A advisor firms / industry, you may want to check out http://www.masource.org. M&A Source is a sister organization to the IBBA (International Business Brokers Association) and supports the standards, training and knowlede exchange for our profession.

Cheers

Arthur

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Basil Peters January 11, 2013 at 11:13 am

Arthur, thank you very much for this additional clarification – especially on the real estate.

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From LinkedIn January 25, 2013 at 10:40 am

Keith Reed •
Does anyone have a sense of the fee ranges for M&A Advisors, Investment Bankers and Business Brokers?
Thanks in advance.
Keith

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Basil Peters January 25, 2013 at 10:42 am

Hi Keith –

I think this will answer your question:

http://www.exits.com/blog/ma-advisor-fees-selling-business/

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From LinkedIn January 25, 2013 at 10:43 am

Basil, doesn’t get much better than this.

Realize now that your site should have been my first stop.

Thanks for this.

Keith

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Ruth Walther January 27, 2013 at 9:03 pm

Great post! Thanks for sharing this information.

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David Lopez February 28, 2013 at 12:20 pm

Appreciate the post Basil. I have also pondered the question regarding the difference between an M&A advisor and Business Broker, primarily as it relates to licensing requirements. To my knowledge, in the state of California where my company Transition Consultants is based out of, you are required to hold a Brokers license when transacting an asset sale for a business of any size, regardless of whether the real estate is part of the transaction or not. This licensing requirement varies from state to state as not all require you to be a Broker to transact a business (http://businessbrokeragepress.com/industry-resources/state-licensing/). Of course the licensing requirements are clearer in the case when a business is listed and transacted as a stock sale since a broker-dealer securities license would be required in this case. However, in CA a real estate broker who has a listing for the sale of the assets of a corporation is entitled to a commission if the parties decide on the sale of the stock in the corporation, provided it is a sale of all of the outstanding stock. Was wondering if anyone had any additional input on this licensing matter?

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Basil Peters March 1, 2013 at 9:44 am

Excellent question, David. I’ve been told that in addition to the state-by-state differences, there is also an unwritten understanding in the industry that if the company qualifies as an SBA then FINRA registration is not required. I have no idea whether that’s true – anyone else heard that?

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Dan March 16, 2013 at 9:39 am

In our shop we have a different approach to the Business Broker Vs Inv bank/M&A Advisor. Many above have rightly talked about the processes being different but we add another component. The size of the deal doesn’t drive the “definition”. For us we have a totally different process for an M&A deal or Biz broker deal. But how the client ends up which system is based who we think the best buyer is for the business . if we think the best buyer is a PEG/Strategic we use an M&A process, regardless of size, if the best buyer is an individual we use a biz broker process. I think this explains why we’ve sold $800,00 deals to strategics/PEGS and we’ve sold $7mil deals to individuals.

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Basil Peters June 12, 2013 at 4:15 pm

Fascinating distinction, Dan. In the crazy market we have right now, I have often seen a strategic buyer, PE firm and individual all simultaneously bidding for the same company. I see “Boomer Buyers” active all the up to PE firm valuations. So, it’s not completely clear to me how you’d select which process to apply. Perhaps we can find an opportunity to discuss this one of these days. Thanks for posting this comment.

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