Exit and Growth Strategies for Middle Market Businesses

Investment Bankers vs. Business Brokers – It’s Not Just About Size

By Dan Vermeire | Mar 25, 2015

Question marksThe Differences Between Investment Bankers and Business Brokers

You may hear the words “Business Broker” and “Investment Banker” used interchangeably. Some people think they mean the same. That is not completely wrong – both professions are aimed at financial transactions for a business. But, by any other measurement, the two words mean very different things.

One common misconception is that it’s all about size. That is, if you’re a business owner and you want to consider a transaction for your business, then you align with a Broker or an I-Banker, simply depending on the size of your business. Many people think an arbitrary revenue number, such as $2M or $5M, will decide.

Size matters, of course, but only in general terms – and there are many exceptions. With M&A, there are three main divisions. Business Brokers tend to operate in the lower revenue range, say $5M and below. Investment Bankers operate in the “Lower Middle Market” generally ranging from $5M to $250M. “Bulge Bracket” or Wall Street Investment Bankers operate at higher levels, generally $500M and above.

When you look beyond these basic numbers, there are large differences. Size, expressed as revenue, can be very different than size expressed as earnings. And market valuation can be very different still. All these size measurements will vary greatly based on the industry, the business model, financial market factors, and the unique attributes of the business. So, size is not always a simple, or useful, measurement.

In fact, there are at least 8 factors to consider when looking at the differences between a Broker or an Investment Banker. Think of these factors as the yardstick to measure the best choice for your business. For example, regardless of size, how important is it to have a confidential process? Or for your advisor to have relationships with the right types of buyers?

Factor Business Broker Investment Banker (LMM)
Revenue Size $0.5M to $5M $5M to $250M
EBITDA Size $0M to $2M $1M to $50M
Typical Seller is… an Individual a Family, Group or Corporation
Typical Buyer is… an Individual Corporation or Private Equity Group
Financing Types are… Loans from friends, family or SBA Banks, funds, institutions, or specialty lenders
Deal Process is… an Internet listing an M&A process, focused or broad
Documentation is… an Internet form, plus a financial statement Confidential Information Memorandum, Financial Analysis, Data Room, Microsite
Licensed Professional? No Yes – for reputable firms
Confidential Process Sometimes Yes – definitely

As you can see, when you think about the differences between a Broker and an Investment Banker, it’s not just about size. Look closely at the characteristics of your company and ideal transaction. Then, measure by the factors above, and determine the right fit for your situation. For more information, contact any of the CFA professionals.

Posted by Dan Vermeire.

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