01 Dec Business Broker vs. Investment Banker: Which to Hire?
Selling your business is an emotionally-charged, always complex process. Professional advisory in this realm can be equally challenging, but is always rewarding when the process is performed successfully. The type of transaction including size, industry and strategy will most often determine whether a business broker or investment banker advises in the transaction.
Business Broker—The process of selling a business through a broker is relatively simple and generally is done on smaller businesses whose revenues are less than $5 million or whose overall valuation is $5 million. Brokers generally deal with the bottom 90% as a measure of deal number and the bottom 3% of overall monetary volume. They deal directly with owners of dry cleaners, restaurants and most single-entity enterprises.
Buying a business through a business broker is done through simple inquiries often done through a website. After some swapped NDAs, negotiations convert inquirers into buyers.
The cost of a business broker generally doesn’t include retainer fees, but a simple 5 to 10% fee of the overall sales price at the end of the transaction.
Investment Banker—Large complex enterprises with highly-necessary due diligence often require a more complex and well-versed banker. Investment bankers typically work with more scaled enterprises whose revenues are in the range above $10 million and whose EBITDA is north of $2 million.
iBankers generally sell companies through a controlled auction process. Well executed auction processes can often result in higher valuations a greater payout for shareholders and founders. Maximizing business value is done through showcasing the strategic benefit of a target to larger, generally public companies. Target companies are often pitched to multiple buyers to pump-up demand and increase the final sales price. The business sales process will include pitching the deal to up to 100 companies. The banker will hand-hold and be a point-of-contact until the deal ends.
The best bankers charge a retainer fee to ensure the time they input into the deal is fairly compensated. However, the greatest amount is gained when the deal finally closes.
When it comes to choosing the type of representation when selling a business, it is often helpful to understand your own business, but also to know how the process will differ.