Using Investment Bankers to Sell a Business

What Is The Difference Between a Business Broker and an Investment Banker?

Business brokers and investment bankers can both help sell your business. But what is the difference between a broker and a banker, and which one should you use to sell your company?

Like most owners, you want to sell your company with as little hassle and hoopla as possible.

No one can blame you for that. But as it turns out, you have a lot of choices to make before you can head off into the sunset, starting with whether you will use a business broker or an investment banker to help sell your business.

Business brokers and investment bankers are similar in that they both work to get top dollar in the marketplace. But that's where the similarities end because brokers and bankers approach the sale process very differently. Each approach has benefits and drawbacks so you need to weigh the pros and cons before you settle on either a broker- or bank-assisted sale.

In many cases, the size and scope of your business will play a role in making the decision for you. Keeping that in mind, here are some of the key differences between business brokers and investment bankers (or merger & acquisitions advisors).

  • Business size. Business brokers typically handle deals less than $2 million while most investment bankers won't touch a deal unless it has potential to cross the $2 million threshold. The best investment bankers focus their energy on deals in the $5+ million range.
  • Sales team. Like a real estate agency, business brokers are often one-man operations. Even large brokerage firms usually take a single broker approach to a business sale. Investment bankers, on the other hand, rely on teams consisting of both junior- and senior-level investment banking specialists.
  • Acquirers. In a brokered business sale, acquirers are individuals or small groups of individuals. But in investment banking, acquirers are frequently corporations as well as groups of individual investors.
  • Planning. Business brokers may offer advice about preparing the business for sale, but the ultimate responsible for planning and preparation falls on the seller. Investment bankers are intimately involved with planning and preparation as they develop the story they will use to sell your company to buyers and investors.
  • Sale type. Brokered business sales are straight-up asset sales even though a significant portion of assets may be intangibles. Investment bankers sell assets, too. But they also specialize in selling securities or shares of stock in the business to investors.
  • Fee structure. Brokers receive a percentage commission on the transaction after the sale closes (around 10%). Since investment bankers are required to invest significant energy into the sale with no guarantee of a closing, they charge a monthly retainer that is credited toward the success fee, i.e. a structured commission on the final sale.

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