Business brokerage compared to professional M&A advisory
As a professional M&A boutique, KP Tech Corporate Finance advises small and medium-sized companies from Germany, Austria and Switzerland on the sale and succession of companies as well as international companies on the acquisition of companies.
Anyone dealing with a share sale or a company sale has several options to achieve a successful share sale/company sale. The alternative options are:
Sale of the shares or the company
- without the involvement of an M&A advisor or a corporate intermediary
- with the help of a business broker or business intermediary
- by engaging a professional M&A advisory firm or M&A consultancy/ M&A advisor.
The sale of the company without or with a professional M&A advisor
Anyone who has already chosen the first option will agree with us that they will hire an M&A advisor the next time they sell a share or a company. The advantages are obvious: the owner can concentrate on the operative business. In addition, he does not make any mistakes in the M&A process and acts professionally. As a seller, the owner shows potential buyers that he is serious. With professional preparation and implementation, the sale process is completed more quickly - and usually achieves a higher purchase price. Usually, with a professionally set up sales process, the seller receives several offers from different potential buyers. This way, the owner knows that he has selected the optimal buyer.
Corporate intermediaries versus M&A advisors
For those who can understand the above arguments, the next question is what kind of support/advice they will find in the market. After an initial market analysis, the potential share seller/company seller will realise that the market in Germany, Austria and Switzerland is very confusing and that there is a multitude of company brokers as well as M&A advisors.
It is therefore necessary to decide whether one wishes to commission a company brokerage or an M&A consultancy with such a complex, confidential and unique project. Furthermore, it is important to recognise the reputable from the dubious providers. The following comparison shows the essential differences between a business brokerage (or a business intermediary) and an M&A consultancy.
From our point of view as professional M&A advisors who have been active in the market for more than 20 years, the decision is clear after reviewing the following comparison: for the commissioning of an experienced and industry-oriented M&A consultancy. A further comparison between business brokerage and M&A advisory can be found here.
|Business intermediary or business brokerage
|M&A adviser or M&A consultancy
|The business intermediary provides no or only very rudimentary advice -> low probability of success, high risk of failure to identify potential problems
|Comprehensive M&A advisory services in all phases of the M&A process, such as long list, short list, information memorandum, letter of intent, detailed company valuation according to various valuation methods, transaction structuring, negotiation partner -> very active role, which increases the likelihood of a successful deal and identifies and solves potential problems early on
|Company brokers are usually not industry-focused -> important industry know-how is missing in the M&A process
|The M&A consultant has sector know-how in particular as well as profound knowledge of existing sector trends and sector developments. Furthermore, the M&A consultant has detailed know-how in the preparation of complex company valuations, e.g. also on valuation procedures for intangible company assets (patents, etc.).
|The fee for the business intermediary is often paid by both parties (buyer and seller) -> conflicts of interest
|The M&A advisor's fee is paid exclusively by the client (buyer or seller) -> no conflict of interest
|Contingency fee; in some cases an additional one-off fee on commissioning and/or hourly rate
|Pro rata fee ("retainer" per month) and success fee
|Success fee 6%-10% and above of the purchase price à low performance, high costs
|5% for transactions up to EUR 5 million, above that lower percentages in the form of a descending percentage scale (also called "Lehman Scale").
|Creation of a short profile ("teaser") of the company to be sold -> little to no know-how of the contents of the M&A process and no active management of the M&A process
|Preparation of all relevant documents in the M&A process: teaser, information memorandum, company valuation, letter of intent, transaction structure, contents [not wording!] of the purchase agreement -> extensive know-how of the M&A process and active management of the M&A process.
|Planned figures (if available at all) of the client are usually taken over unchecked.
|Preparation of a detailed and coherent financial plan for the next 5 years (budgeted balance sheet, budgeted P&L, budgeted cash flow statement)
|Company mediation: No elaboration of normalised EBIT/ EBITDA -> low (partly considerable) purchase price
|As part of the preparation of the financial planning, the EBIT and EBITDA relevant for a potential buyer are worked out and justified in the information memorandum. Positive and negative earnings contributions that are not relevant for a buyer (e.g. excessive management salaries, restructuring, financing costs, etc.) are shown separately -> the purchase price is calculated on the basis of the normalised EBIT/EBITDA and is usually not insignificantly higher.
|Frequent indiscriminate and/or mass approaches to potential buyers by the business intermediary. Sometimes also entries in public databases and/or placement of advertisements. Company brokerage: No own research department -> risk that relevant buyers are not approached; higher confidentiality risk.
|Active selection of potential buyers based on criteria developed together with the client. Strictly confidential and anonymised approach only to relevant buyers on the short list. -> All relevant buyers are identified; lower confidentiality risk.
|As a rule, no follow-up of the addressed companies
|Active follow-up of the addressed companies from the short list
|Participation in no meeting or often only in the first meeting between buyer and seller
|Accompaniment and active organisation of all meetings
|No facilitation function, as there is no participation in meetings or, if there is participation, there is a conflict of interest (remuneration of both parties) and the company mediator lacks the necessary know-how. Thus no "bad guy" function possible
|Moderation function in the M&A process increases the likelihood of a successful project conclusion, as misunderstandings are recognised and cleared up at an early stage and the M&A advisor takes on the function of the "bad guy".
|The business intermediary has a high interest in reaching a conclusion with the least possible expenditure of time (as there is no or only a very low pro rata fee). In some cases, business intermediaries exert active pressure on the client to sign a sales contract.
|The M&A advisor actively manages the M&A process, including contract negotiations, in order to achieve an optimal result for the client (purchase price and contract contents and transaction structure in combination!). M&A advisors advise the client against unfavourable transactions!
Tip: Communication in the sale of a company between seller and buyer
Communication between seller and buyer is an extremely important aspect when selling a business. It is important that both sides communicate openly and honestly with each other. Misunderstandings are thus avoided and it can be ensured that the sale goes smoothly. The seller should provide the buyer with all important information about the business.
The buyer should make sure that he has been provided with all the necessary information to make a decision. It is also important that both sides have the opportunity to express and discuss their positions and perspectives in order to reach a common understanding.
Communication between seller and buyer should be open and transparent. The M&A advisor plays an essential role in avoiding misunderstandings and conveying things that buyers and/or sellers do not want to say directly to each other. Entrepreneurs who neglect communication or do not spend enough time answering questions and concerns of the prospective buyers risk that the sales process is delayed or even fails.
It is therefore important that the seller communicates regularly with the prospects and provides all relevant information to gain their trust and maintain the relationship of trust.
KP Tech Corporate Finance – International M&A advisory (Munich/ Germany, London/ UK, Philadelphia/ USA)
KP Tech Corporate Finance has been advising companies for more than 20 years as an international M&A consultancy on the topics of company sales, company acquisitions, company valuations and private equity as well as on corporate financing issues. Benefit from more than 20 years of experience in international corporate finance consulting with headquarters in Munich/ Bavaria/ Germany and offices in Duesseldorf and Berlin. KP Tech Corporate Finance is a member of the Association of German M&A Advisors (VMA) e.V., Frankfurt am Main/ Germany.
Contact KP TECH in strict confidence by phone +49 (0) 89 21 53 66 09-0
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