Intermediaries can take on many different forms, but generally speaking there are three broad classes of professional intermediaries – Main Street (typically referred to as Business Brokers), Middle Market, and Large Transactions. Certainly there is overlap among all three classes, but the majority of the time firms tend to fall into one of these three groups. Their primary differences revolve around deal size, methodology, and type of buyer.

Deal size refers to the value of the transaction. Main Street intermediaries typically focus on transactions that have a value of under $1,000,000. Middle Market firms generally focus on transaction values of $2,000,000 to $50,000,000 while Large transaction firms handle transactions over $50,000,000.

Methodology relates to the process and systems employed by the intermediary. Main Street firms employ a process more akin to real estate sales. They focus on acquiring a large inventory of listings with corresponding business opportunity advertising and deal sharing with other Main Street firms. Main Street firms tend to focus on local and community based small businesses such as restaurants, dry cleaners, pet stores, auto body shops, lawn care, and convenience stores. Relative to the other segments, they spend a small amount of time on pre-sales planning and marketing instead relying on one-page briefs describing the business opportunity. Their marketing is primarily advertising and contacts within their individual buyer databases.

The middle market mergers and acquisitions firm is characterized by heavy pre-sales planning and proactive marketing outreach. They spend significant time on the front end developing a comprehensive deal book that outlines and discusses all of the key components of the sellers business. Their methodology is heavily focused on researching the marketplace to identify strategic buyers and executing a comprehensive marketing campaign to attract their interest. In addition, middle market firms typically maintain an extensive database of financial buyers.

Large transaction firms tend to employ a financial engineering methodology. They spend the greatest amount of time on pre-sales planning and deal structure. The universe of purchasers for large companies is much smaller, so less time is spent on actual marketing. Frequently, the ability to create financial synergy is the motivating factor behind large deals.

The type of buyer involved in a Main Street transaction is typically an individual characterized by the following; they are usually looking to buy “a job,” they normally have little cash, reliance on seller financing, and minimal experience as a business owner. In middle market and large transactions, buyers tend to be larger privately owned companies, private equity firms, or public companies. They normally have cash available for transactions or have bank financing in place and maintain experience in business acquisitions.

As with any industry, there are both quality firms and inferior firms. Main Street, Middle Market, and Large Transaction firms each have their own strengths and unique position in the marketplace. The question is not which type of firm is better, but which one is best suited for your specific deal.

After determining which type of firm has the best fit with your deal, you can turn to the selection criteria for choosing which specific intermediary to deal with. There are a number of factors you should evaluate when choosing who is going to represent you in the sale of your business. The remaining pages of this article will focus on six of these factors denoted by the acronym WEALTH:

·      Wide Range of Clients

·      Experience as an Owner

·      Academics and Credentials

·      Listens to Your Goals

·      Trust and Confidentiality

·      High Quality Engagements

A Wide Range of Clients relates to the intermediary’s experience in working on deals that span many different industries. While there can be some benefit to an intermediary who exclusively focuses on a specific niche, generally speaking you are better off working with a firm that has dealt with clients in diverse types of businesses. The more industries an intermediary is exposed to, the more buyers he is exposed to leading to a larger contact base on future deals.

It is extremely beneficial to find an intermediary who has Experience as an Owner himself. An intermediary who has bought and sold businesses where he has a personal interest has a much greater empathy for the seller. In addition, he has a greater understanding for the practical aspects of selling an ongoing business. This also gives the intermediary greater credibility with the prospective buyers.

An intermediary who has furthered himself through Academics or Credentials demonstrates a commitment to professionalism. Certainly there are exceptions to this guideline, and many in the mergers and acquisitions field have great skills while lacking in the areas of academics and credentials.

As in any service business, it is critical to find a professional who Listens to Your Goals. Every deal is different and every business owner has unique objectives. Especially during the pre-sales planning phase, an intermediary needs to focus on your desires as opposed to a pre-determined plan.

Trust and Confidentiality is the single most important factor you should look for in an intermediary who will represent you in the sale of your business. The majority of the time you will not want anyone to know you are contemplating a divestiture. At the very least, you want to have control over who is aware of your plan. The firm you select must have tight control over how information is released to prospective buyers.

The last characteristic you should look for is a firm that focuses on High Quality Engagements. In other words, you do not want to work with an intermediary who will take any deal that comes along. A firm dedicated to high quality deals will only take on your project if they feel there is a reasonable probability the deal will close. This reduces the risk of wasting your time by embarking on a project that in all likelihood will not happen.

Of course, even when your selected mergers and acquisitions firm meets all of the criteria and the fit is perfect, there are still no assurances the deal will happen. Naturally, by spending the time evaluating your options and making the best choice for you, your opportunity for success is increased.

Copyright © 2004, Mark T. Jordan. All rights reserved. Permission granted to reprint this article on your website or in your newsletter without alteration if you include this copyright statement.