Which to Use: Business Broker or M&A Advisor?

By Ryan Kuhn, founder of Kuhn Capital, an M&A advisor to mid-market technology companies.

Both connect buyers and sellers. But they serve different types of clients. How they serve them is also different, more so than most business owners expect. Which one best serves your M&A needs?

Size Matters Most

As a rule of thumb, M&A advisors typically handle transactions valued from about $10 million to hundreds of millions. In contrast, business brokers typically work with smaller businesses, sometimes those with less than $500,000 in sales.

Many larger B2B companies have national, even international reach. Those businesses nearly always use M&A advisors. In contrast, brokers focus on B2C or consumer-facing companies serving local communities, such as restaurants, retail shops, and trade specialists like carpenters and HVAC repairers.

The Complexity Divide

Beyond a larger company’s size and geographic market coverage, its products, services, and financial control systems are also usually more complex. That’s another way advisors and brokers part ways. Advisors operate in industries that can require specialized knowledge. Examples: software, aerospace, telecom, healthcare, professional services, and heavily regulated industries. Advisors also manage more complex deal structures, such as:

• Third-party financed acquisitions
• Cashless mergers between two private companies
• Sellers converting to ESOPs
• Carve-outs of divisions from larger companies
• Recapitalizations or partial liquidity events

These transactions require financial modeling, legal structuring, and, in some cases, lender participation and new minority investors. Brokers, by contrast, usually focus on selling all of the client’s assets or stock to an individual buyer or local competitor.

Breadth of Services

Good M&A advisors running a sell-side process assist clients with:

• Vetting the business and then recommending steps to enhance value in advance of sale
• Preparing extensive marketing materials
• Growth or acquisition financing
• Fairness opinions and
• Financial modeling

(For a more complete list of the activities of M&A sell-side advisors, see How to Sell a Mid-Market Company (Advisor Version). And for how advisors create value for both buyers and sellers, see The Power of M&A and M&A Advisors to Create Wealth.)

In contrast, brokers mostly concentrate on selling a business as-is, with limited pre-sale preparation and narrower buyer outreach.

As an aside, an even more sophisticated member of the financial intermediary family—the investment bank—handles deals valued at up to billions of dollars, invests alongside clients in transactions (underwriting), and takes companies public. The term “investment” means they invest their own money in the deals they promote.

Last, Compensation

Compensation for advisors and brokers reflects the differing levels of workload and complexity as described above. M&A advisors typically charge:

• A retainer (flat, monthly, or milestone-based), plus;
• A success fee upon closing.

Retainers reimburse the advisor for pre-sale work like financial modeling, access to proprietary databases and market research, internal DD, CIM preparation (see The Perfect Information Memorandum), and managing an M&A team over several months. Retainers also signal to the advisor that the client is as committed to completing the process as the advisor is.

Business brokers typically work on a success-fee basis only. Since their processes are shorter and less data-intensive, they can support more simultaneous listings and therefore operate on a contingency or pay-at-close basis, as real estate agents do. Compared to advisors, their success fees are higher, reflecting the smaller deal sizes they represent.

See more details on intermediary fees at:

• For mid-market M&A advisors: Divestopedia.
• For brokers: BizBuySell.

So, Which One Should You Use?

In sum, brokers and advisors serve different types of businesses with distinct processes and deliver varying degrees of deal preparation, company analysis, and marketing. M&A advisors address the transaction needs of businesses valued from about $10 million to several hundred million, serving national and international markets with more complex offerings. Brokers tailor their services to smaller businesses serving local markets.

It’s like:

• You’d consider a chiropractor to soothe an aching back.
• But you’d choose a doctor for a comprehensive annual exam.