M&A Boutique - Business Intermediary (Business Brokerage) - M&A Advisor
When looking for an advisor for the sale of one's company, one finds the most diverse types of providers and advisors. The layman asks himself two questions: "What distinguishes a business broker from a business intermediary, from an M&A advisor, from a corporate finance advisor, from an M&A boutique or from a corporate finance boutique?" And the second question follows directly: "How can one distinguish reputable providers from dubious providers?
What distinguishes a business broker from a business intermediary, from an M&A advisor, from a corporate finance advisor, from an M&A boutique or from a corporate finance boutique?
Basically, a distinction can be made between brokers and advisors.
Brokers ("business brokers" or "business intermediaries") are companies or individuals who bring two parties (buyer/seller) together and receive a commission from one or both parties in the event of success. The activity of brokers does not include any or only a small advisory service.
Advisors ("M&A Advisor" or "Corporate Finance Advisor" or "M&A Consultant" or " Corporate Finance Consultant") provide comprehensive advisory services and work exclusively for one party - either the buy side or the sell side. The M&A consultant is thus mandated by the buyer or the seller. Only the client pays a fee to the commissioned M&A advisor. M&A is an abbreviation for "Mergers & Acquisitions" or in German: Beratung im Bereich Unternehmenskauf, Unternehmensverkauf, Fusionen. In contrast to the M&A advisor, a corporate finance advisor also provides more comprehensive advisory services in the area of financing (e.g. structuring of debt financing).
Broker - Business Broker - Corporate Broker - Corporate Finance Advice
Business brokers are usually found in small and medium-sized business transactions. As a rule, they are not specialised in sectors. This is also not necessary, as the activity consists of pure business brokerage and no or only very rudimentary support is provided in the form of advisory services and the preparation of documents, etc.
Business brokers rely on their network of contacts and the "masses", which means that a business broker will contact as many potential buyers as possible when selling a business. This often takes the form of mass mailings and advertisements on internet platforms. Via the mass approach, the business broker's chance of finding a potential buyer for the business for sale increases.
Advantages of hiring a business broker or business intermediary
- Costs only in case of success. Attention: dubious providers among the brokers also try to charge a one-off fee for the examination of documents etc.
- Hiring a business broker is often the only way for very small companies to sell their business, as the costs for a professional M&A advisor are usually out of proportion to the achievable sales proceeds.
Disadvantages of using a business broker or business intermediary
- In this market segment, the number of dubious providers is significantly higher than in the area of professional M&A advisors
- The broker only arranges contacts. The preparation of professional documents such as a detailed information memorandum (presentation of the company on 30-100 pages in all facets) as well as advice on the topics of company valuation, letter of intent, due diligence, contract negotiation, coaching, etc., which is crucial for the success of a company sale, does not take place. The company seller is left to his own devices
- Corporate brokers usually charge too high commissions compared to the service provided
- Brokers usually try to obtain a commission from both parties. This delays approaching potential buyers, as they are often - rightly - unwilling to enter into a commission agreement with the broker
- If the first mass and undifferentiated approach of potential buyers does not immediately lead to success, then the company for sale ends up as a "dead end" in the "marketplace" of the company broker - and is usually never sold through this provider. Dubious brokers try to achieve a maximum commission with a minimum of effort
- Business brokers do not prepare a detailed business valuation. As a rule, it is not in the broker's interest to optimise the sales price, as his risk of not receiving a commission increases the harder the contract and/or the purchase price is negotiated.
Mass mailings and no professionally prepared financial data
- By approaching them en masse, the business broker "kills off" a very broad market of potential acquirers, which means that the business broker secures all those contacted via a corresponding contractual clause in the form of an after-effect after the end of the contract. These are often hundreds of companies - mostly only in German-speaking countries. If the seller of the company does close a deal with one of these companies after the end of the contract in the after-effect period, he still has to pay a commission to the business broker.
- Due to the mass approach, there is a latent danger that word of the sales intentions will get around in the market and among employees and that the operational business will be jeopardised
- The business broker does not deal in detail with the financial data of the business for sale. For this reason, he will not recognise and thus not implement many value-enhancing measures. Without realising it, the seller quickly gives away several hundred thousand euros, which he could have achieved through higher sales proce
Advisor - M&A Advisor - Corporate Finance Advisor - M&A Boutique
M&A advisors can be found in the area of small, medium but also large M&A transactions. The activity of the M&A advisor covers the complete spectrum of advisory services in the area of company acquisitions, company sales, company valuations and private equity advice. Corporate finance advisors, on the other hand, offer additional advisory services in the area of financing (equity, debt, mezzanine) and initial public offerings (IPO).
Investment banks, on the other hand, offer additional services in the area of share trading, support for listed companies in capital market issues such as capital increases via the stock exchange. Before the start of an advisory project, the M&A advisor or corporate finance advisor concludes a mandate agreement with the shareholders of the company to be sold or, on the buyer side, with the company as the client.
Advantages of engaging an M&A advisor / corporate finance advisor / M&A boutique
- The consultant provides comprehensive advisory services in the entire M&A process, which increase the likelihood of a successful conclusion as well as the value of the company and thus the purchase price. In the case of a company sale, the services include, for example:
- Preparation of the company for sale (implementation of value-enhancing measures, "bride is adorned"),
- preparation of a professional business valuation,
- Preparation of a professional information memorandum, identification of potential buyers,
- Anonymous approach of a clearly defined and small number of potential buyers ("targets")
- Advice and negotiation of the letter of intent,
- Support in the preparation and execution of the due diligence,
- Negotiation of the purchase agreement (sales and purchase agreement, or SPA) - M & A consulting also includes communication (often informal) with the buyer to exert pressure ("bad guy" role) or to clarify and resolve misunderstandings.
- In the market for M & A consulting, there are consultants who specialise in one or more sectors (e.g. information technology, biotech, engineering, measurement technology, laser technology, classic industries, pharmaceuticals, ....). Furthermore, there are M & A consultants who are sector-neutral. Potential clients thus have the freedom to choose between hiring a sector specialist or an "all-rounder".
- M&A advisors, in contrast to corporate brokers, are usually internationally positioned and enable targets to be approached worldwide
Dubious providers
- In this market segment, the number of dubious providers is lower than in the area of business brokers. Professional M&A advisors can be recognised by their many years of successful activity in the market. A serious M&A advisor conducts initial discussions free of charge and carries out basic analyses about the company. The goal of a serious M&A advisor is to accept only those mandates that lead to a successful conclusion. Serious M&A advisors therefore inform themselves comprehensively about the company, its products as well as the market and competition prior to an assignment - it is quite possible that an assignment will be rejected if the advisor considers the timing to be unfavourable or fundamentally sees a low probability of success. Dishonest M&A advisors accept every order without further examination of the company and often charge for consulting services for the examination of the company in advance.
- The fee of an M & A consultant usually pays off for the client several times over due to the professional advisory service (e.g. higher purchase price when selling the company)
- An M&A advisor is exclusively remunerated by his client (buyer or seller). For this reason, there are no conflicts of interest in contract negotiations or company valuations. Short-listed companies contacted by the advisor know that the advisor does not ask for any commission and works professionally. The professional advisor is the best "business card" for the seller. The potential buyer recognises that the seller is serious, knows the M&A process and acts professionally
- The M&A advisor only addresses a small group of potential targets ("short list"), which have been discussed in detail with the client and approved by the latter for anonymous addressing
- Due to the selective and usually worldwide approach as well as the signing of a non-disclosure agreement (NDA) by the interested companies, confidentiality is maintained
Disadvantages of hiring an M&A advisor / M&A boutique/ corporate finance advisor
- For very small companies, the costs of M&A advice are usually in an unfavourable ratio to the purchase price to be achieved
KP Tech Corporate Finance Consulting (Munich, Frankfurt am Main, Düsseldorf, Berlin/ Germany, London/ UK, Philadelphia/ USA)
KP Tech Corporate Finance has been advising companies for many years as an international corporate finance consultancy on the topics of company sales, company acquisitions, company valuations, company succession and private equity as well as on questions of company financing. Benefit from more than 20 years of experience in international corporate finance consulting with headquarters in Munich/Germany. Our M & A team is on site for you in Munich, Frankfurt am Main, Berlin and Düsseldorf.
Contact KP Tech in strict confidence by phone +49 89 21 53 66 09-0
