Business broker vs M&A advisor: who should sell your business?

Process and structure more than size. A business broker typically lists an owner-operated business to a wide pool of individual buyers, usually as an asset sale. An M&A advisor runs a confidential curated process to a shortlist of corporate acquirers, comfortable with a stock sale. Federal statute draws the hardest available line at the top end: the M&A broker exemption reaches a company with EBITDA below $25,000,000 or gross revenues below $250,000,000, and above that a registered broker-dealer is required.

Often not. The exemption at 15 U.S.C. 78o(b)(13) lets an M&A broker handle the transfer of ownership of an eligible privately held company without registering, provided the acquirer is expected to control and actively manage the business and the broker stays inside a list of conditions. Above the thresholds, or where the deal involves a public offering of registered securities, registration is required. A pure asset sale involves no securities at all, which is why many business brokers operate without registration.

Yes, and this connection is rarely drawn. Securities registration engages on transactions in securities: stock is a security, equipment and customer lists are not. A broker handling a pure asset sale is not brokering securities. Restructure the same deal as a stock sale and the registration question engages, so an intermediary that is neither registered nor inside the exemption has had its position change underneath it, along with the enforceability of its commission agreement.

It is the most common way an owner creates an accidental problem. A percentage of the transaction paid for bringing the parties together is transaction-based compensation, which is the characteristic that turns an introducer into a broker. It is usually agreed informally, often with someone known to the business, and the exposure arrives at closing when the fee falls due and somebody's counsel reads the arrangement. Take advice before agreeing one.

FINRA BrokerCheck is free and immediate and covers registered firms and individuals, returning registration status, employment history, exams passed and disclosure events. Most lower middle market advisers appear in no register at all, lawfully, because there is no register of exempt M&A brokers. So ask in writing which of three positions the firm occupies, whether it will ever take custody of transaction funds including escrow, and whether it may also represent the buyer.

A business broker is usually paid a success commission and an M&A advisor a retainer plus a success fee on a declining scale by deal size. Neither is standardised and both are negotiable. The SBA's guidance on preparing a sales agreement tells sellers to note all adjustments, broker fees and any other aspects relevant to the terms, which is a plain statement that the fee belongs in the document rather than in an understanding.

Only where there is genuinely one buyer, and that is rarer than owners think. A bilateral negotiation prices the business at the lowest number the buyer believes you will accept, and no amount of preparation substitutes for a second bidder. Where an approach has already arrived, the cheapest useful step is not hiring a bank but establishing whether a second interested party exists, because the answer changes the price more than the process does.