What is an M&A Advisor?

BY Basil Peters

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.