The Sell-Side M&A Advisory Firm Landscape – Choosing the Right Firm

Choosing the right M&A advisory firm to assist you in the sale of your business is no easy task.  Besides hiring someone you trust that will always have your best interests in mind, it starts with an understanding of how your business needs fit with the core services provided by the candidate M&A firm, as there are several types of firms that typically fill different needs in the marketplace.  This blog article outlines some of the main types of M&A Advisory firms and the circumstances in which their services are most appropriate.

Business Brokers
Business Brokerage firms may be best described as Real Estate brokers for small businesses. They normally are used most appropriately for “Main Street” businesses like dealerships (Eg: boats, RVs, cars, equipment), restaurants, farms, services (Eg: janitorial, accounting, HVAC), etc.  Often there may be a real estate component of the business (although not necessarily) and the enterprise value is usually less than $10 million.  The best buyer is often someone else that is already in the same business or another entrepreneur that is looking to own and operate their own business.  Normally the Business Broker advertises the sale of the business with its “recast” earnings, Seller’s Discretionary Earnings (SDE), and whether it includes real estate, inventory, etc. on a web listing service and to its network of approved buyers. Unlike other M&A advisory firms, some business brokers may advise both the seller and buyer simultaneously if it is properly disclosed to both parties.

Niche M&A Advisory Firm
Some smaller firms (such as B&A Corporate Advisors), focus on specific industry segments based on specialized knowledge, experience, and extensive contacts.  The services offered are sometimes combined with consulting services.  Sell-side services are usually limited in scope to high value-add, narrow processes with perhaps up to ~25 to perhaps 50 potential strategic buyers.  The number of engagements at any given time is limited so that a customized, focused, flexible process is delivered to select clients.

Typically, Niche M&A Advisory Firms sell-side services are focused on closely held, family-owned, and/or entrepreneurial-led private companies with a deal size of ~$5 -$30 million in enterprise value, and where the potential buyer will operate and have a controlling interest in the seller’s business.

Lower-Middle-Market/Boutique Investment Bank
Lower-middle-market Investment Banks (eg: SDR Ventures), sometimes referred to as Boutique Investment Banks, are usually made up of between 10 and 30 employees operating out of a single office.  Each client engagement is resourced like the larger investment banks, however, the services are limited to buy-side/sell-side M&A advisory and capital raising activities.  Deals are led by a senior member of the team, with analysts, marketing, and administrative staff supporting each engagement.  They normally subscribe to many specialized databases and often have alliances with other International M&A firms.

In the US, they typically need to be registered with FINRA and/or SPIC (or as exempt dealers in Canada) for their capital raising and other regulated securities activities.  Most are generalist firms and excel in broad sell-side services (auctions with 100-300 potential buyers including wealthy individuals, family offices, and private equity firms) and by providing corporate finance services to private, closely-held, family or entrepreneur-led businesses with enterprise values between $20 and $100 million.

Lower-middle market investment banks are most suited for highly marketable companies that will generate strong and broad interest from both strategics and private investors.

Middle-Market Investment Bank
Middle-market Investment Banks provide all the services the lower-middle-market banks provide along with IPOs, security underwritings, asset management services, equity research, and sell a host of investment products/services to and for their public and private clients.  They are highly regulated in both Canada and the US.  Typically, they may have hundreds of staff operating out of multiple offices in several countries.  M&A deal size is typically ~$50 to $500 million or more.

Senior team members often focus on “rainmaking” activities for their large corporate clients.  They often only directly manage sell-side engagements on the larger deals, or those that involve their larger, multiproduct clients.  Smaller deals are assigned and led by more junior staff.

Bulge Bracket Investment Bank
Bulge Bracket Ibanks are the big brand name banks with often thousands of employees across hundreds of offices around the world.  Their M&A and corporate finance advisory services are focused on large and mega deals (~$1 billion +), often providing third-party fairness opinions for large, publicly-traded multinationals.  They provide everything the middle-market Ibanks provide, plus retail investment products, mutual funds, ETFs, manage hedge/private equity funds, and sometimes are an arm of a regular commercial bank.

Knowing your needs and how the M&A Advisory community would view your business is an important first step in selecting the best firm.  Additional selection criteria will be outlined in a future B&A Blog article.

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