The difference between right and tragic in M&A can cost a company both money and a reputation. CEOs need proven strategies to help prepare for mergers or acquisitions. Working with experts who have experience in your respective industry is essential during a company’s sale or purchase.
Professionals who’ve mastered the M&A process will help you determine the accurate value of the company in question.
Does your company need an M&A advisor or a business broker? This is the million-dollar question every CEO interested in selling is asking.
Principally, what you need depends on whether your organization is privately or publicly held. Other factors you should consider are the company’s near term growth potential, management objective, as well as its management risk tolerance for securities law violation.
In this article, we clarify the widespread confusion about what companies need for a successful M&A process.
Understanding the Difference Between M&A Advisors and Business Brokers
Business brokers help in the sale of organizations that generate no more than $2-3 million in revenue. M&A advisors, on the other hand, broke mergers larger than clients’ companies.
Both M&A advisors and business brokers provide company owners with ownership transfer services.
Understanding this distinction is important to avoid securities law violation.
Aside from business size, the intermediary’s sales process also helps organizations choose whom to go with. Whereas a small business can easily be sold like real estate, bigger ones have to go through the M&A process.
When your business is too big to use listing services, you need to find an intermediary who can handle the outbound sales process. In M&A, strategizing is essential as you target known and unknown buyers.
One last factor you need to consider is whether your intermediary is securities-licensed. There should be a synergy between your needs and the services an intermediary provides. Definitions do not matter as long as your service provider guarantees that their services are regulatory compliant.
Why do Brokers/Advisors Choose not to Register as a Licensed Entity?
It’s quite taxing to register as a licensed intermediary. The examination that’s five hours long takes months to prepare for, and knowledge required for the license is hard to find.
Additionally, once a brokerage firm is licensed, comes the daunting responsibility of record-keeping and reporting.
On one end, choosing not to register as a licensed entity is seen as a rational choice. On the other, intermediaries have to deal with more risk of regulatory non-compliance.
Choosing a licensed entity is ideal; especially for a law-abiding company because registered intermediaries have demonstrated a broad knowledge base in their field. Besides, when you work with an intermediary who’s not securities-licensed, you shoulder the risk of regulatory non-compliance as well.
This also explains why businesses whose annual revenue is under $10 have trouble finding securities-licensed intermediaries to work with. Intermediary firms invest a lot of effort, time and capital in acquiring their securities-license. It only makes sense that they target M&A activities involving much bigger companies for a reasonable ROI.
You need expert assistance from intermediaries when you’re selling your company. M&A advisors and business brokers have the technical knowledge to ensure your deal closes. Always go with securities-licensed intermediary entities to avoid securities law violation.