When looking to sell your company or acquire growth capital, choosing the right representation for your situation is vital. Variables such as top-line revenue, EBITDA, mix of revenue, residential vs commercial, recurring revenue and most importantly, what the end goal of the owner is all help determine which type of broker is a good fit.
Business brokers typically handle businesses that fall under $2 million in top-line revenue. These can be the mom and pop shops like a bakery or laundromat. These types of companies typically reach a certain level and then the owner is ready to transition out of the business. Normal fees for a transaction of businesses this size is 10%-12%. The brokers will use listing platforms that are publicly available through the marketplace to sophisticated investors to find the right match for your business. Typically, they find buyers and are not involved in due diligence or post transaction objectives.
These businesses are typically founder/owner or a family business ranging between $2 million to $50 million top-line revenue. At this point, you’re too big for a business broker due to the various strategies and options available to you and the complexity of the offers. A business advisor can also help prep your company over a one to three year process to bring more value for your business.
Your business advisor knows that a cultural fit is as important as the financial offer. The experienced advisors realize it is a match making process. They will use a vetting process of potential buyers; and, then create a competitive bid process for your business with the goal to garner multiple offers providing you options. This includes reaching out to private equity firms, family offices and strategic buyers. The advisor will stay with you through pre-deal, deal execution, due diligence and post-transition, which is a commonly overlooked, but extremely important part of the process. A good business advisor will save you time and earn you a more valuable deal along with protecting you from the many legal pitfalls that can occur in closing documents.
The fees you can typically expect from your advisor will be around 5% of the transaction plus or minus 1.5% and paid with a successful transaction. The process can be 6 months to 18 months depending upon the circumstances of your business.
The Investment Banker
The final type of business broker is the investment banker who is handling deals in the $100 million-plus top line revenue range. Typically, these brokers are much more expensive than the aforementioned. Their services require significant deposits to begin. These business transactions require sophisticated tax work, CFO financial strategies and complex legal planning due to the large financial windfall and typically the cap table for these companies is more complex with multiple owners, approvals needed and different contractual arrangements.
The majority of business deals will fall within the business broker and advisor range, but it’s still valuable understanding the difference between the types.
Whether you’re a small family business looking to get your well-deserved money out or a larger company wanting to propel your business forward with growth capital, finding the right broker/advisor for your situation is extremely important. If that’s you, we would love the opportunity to discuss your situation and see how TREP Advisors can help you get a deal you can afford.