Business Broker / M&A Advisor / Investment banker - what do we do ?

By Sudarsan Pattabiraman (Broker / M&A Advisor) | 510.944.5616 | sudarsan@upclinch.com

Have you ever wondered what these advisors / brokers / bankers do or had opinions like being a banker / advisor sounds sohpisticated than a broker? Read on to get a sense of the commonalities and differences between these qualified individuals serving the business community. 

M&A Advisors, Business Brokers, and Investment Bankers share core functions in facilitating transactions, but each has unique focus areas and strengths. Here are some commonalities and distinctions between them:

Commonalities

1. Transaction Facilitation: All three professionals help facilitate business transactions, primarily through buying and selling of businesses or assets. They work to connect buyers and sellers, negotiate terms, and guide clients through the complex stages of a transaction.

2. Valuation Expertise: Each role involves business valuation to establish fair pricing. They use various valuation methods, such as income-based or market-based approaches, to align buyer and seller expectations.

3. Negotiation and Structuring: M&A Advisors, Business Brokers, and Investment Bankers all play a key role in negotiating deals. They help both parties agree on terms and structure the transaction, whether it’s through seller financing, earn-outs, or equity deals.

4. Due Diligence Support: They assist with due diligence, ensuring that financial, legal, and operational details are thoroughly vetted to prevent potential issues post-transaction. They often coordinate with legal and financial advisors during this stage.

5. Confidentiality and Marketing: All three roles require maintaining confidentiality, especially when marketing a business for sale. They use targeted marketing to reach suitable buyers or investors without revealing sensitive information prematurely.

Differences

1. Deal Size and Client Base:

  - M&A Advisors: Typically focus on middle-market deals (companies with revenues of $5 million to $500 million), working with clients who may not require the full services of a large investment bank but need sophisticated advisory.

  - Business Brokers: Primarily work with small businesses, often in the $1 million to $5 million range, and focus on individual buyers or small private companies.

  - Investment Bankers: Usually handle larger transactions (often $100 million and above), working with large private companies or publicly traded firms.

2. Services Offered:

  - M&A Advisors: Provide a full suite of advisory services, including strategic planning, valuation, negotiation, and sometimes post-transaction integration support.

  - Business Brokers: Focus on smaller deals with simpler structures, guiding clients through valuation, marketing, and negotiation but usually on a more transactional, less strategic basis.

  - Investment Bankers: Offer comprehensive capital market services, including IPOs, debt financing, and large-scale mergers. They often have access to institutional buyers and complex financial products.

3. Fee Structure:

  - M&A Advisors and Business Brokers: Usually work on a success fee basis, earning a percentage of the transaction value upon closing. Business brokers’ fees range from 8-12%, while M&A Advisors often charge 3-5% for mid-sized deals.

  - Investment Bankers: Also work on a success fee but may have higher minimum fees or retainer requirements due to the larger deal sizes and higher complexity.

Each role is tailored to specific transaction sizes and client needs. While all three facilitate transactions and require skills in valuation, negotiation, and confidentiality, their services and expertise levels align with different market segments.

Contact Sudarsan for planning and executing your perfect exit / strategic acquisition. Schedule time to unlock the business value and realize it for the benefit of you, your family and your community. Email:sudarsan@upclinch.com   Phone: 510.944.5616

How much do business valuations cost ?

 By Sudarsan Pattabiraman (Broker / M&A Advisor) | 510.944.5616 | sudarsan@upclinch.com

Types of Business Valuation Approaches and cost

Here’s a summary of common types of business valuations, along with approximate costs:

1. Asset-Based Valuations

   - Book Value: Assesses the net asset value by subtracting liabilities from assets. Primarily used for asset-intensive businesses like manufacturing.

   - Liquidation Value: Calculates the net proceeds if assets were sold off, often used for distressed businesses.

   - Cost: Generally ranges from $2,000 to $5,000 for straightforward cases, depending on asset complexity.

2. Market-Based Valuations

   - Comparable Company Analysis (CCA): Uses the valuation multiples of similar businesses in the market.

   - Precedent Transactions: Based on recent sales of similar companies, reflecting real-world market pricing.

   - Cost: These valuations typically cost between $5,000 and $20,000, influenced by industry complexity and data availability.

3. Income-Based Valuations

   - Discounted Cash Flow (DCF): Projects future cash flows and discounts them to present value, useful for companies with predictable cash flows.

   - Capitalization of Earnings: Estimates value by capitalizing current earnings, often used for smaller businesses with stable income.

   - Cost: $7,500 to $30,000, depending on the level of financial detail required and the projection period.

4. Hybrid Valuation Methods

   - Economic Value Added (EVA): Considers the business’s ability to generate returns over its cost of capital, capturing excess profitability.

   - Excess Earnings Method: Combines asset-based and income methods, often used in professional practices or businesses with significant intangible assets.

   - Cost: Usually ranges from $10,000 to $40,000 based on the sophistication of the analysis.

5. Rule-of-Thumb Valuation

   - Often used for quick assessments, using industry rules-of-thumb (e.g., 2x revenue). While less accurate, these provide a rough estimate.

   - Cost: $500 to $1,500, as these are typically less detailed.

General Cost Considerations:

The cost of a business valuation can vary widely based on the business size, industry, and valuation purpose. For high-growth or investor-focused companies, more comprehensive valuations can exceed $50,000. For small businesses, a simpler valuation may suffice and be cost-effective.

Valuations for litigation or regulatory purposes are generally more expensive due to rigorous standards.

Each method has its strengths depending on factors like the business size, industry, and the availability of comparable data.

Where do I start?

Contact Sud / Team Upclinch to initiate the conversation. Our team has a well-established network of competent professionals in all aspects of business advisory – including Management, Valuation, Transaction Advisory, Financial analysis and Exit planning.

Contact Sudarsan for planning and executing your perfect exit / strategic acquisition. Schedule time to unlock the business value and realize it for the benefit of you, your family and your community. Email:sudarsan@upclinch.com   Phone: 510.944.5616

Your business’ value – Why know it? When do it?

 By Sudarsan Pattabiraman (M&A Advisor) | 510.944.5616 | sudarsan@upclinch.com

Your business’ value – Why know it? When do it?  

Why do I need a Valuation? 

Business valuations are performed for a variety of reasons, typically centered on financial decisions, legal requirements, or strategic planning. Here’s a breakdown of the primary reasons and types of valuation approaches used:

1. Sale or Acquisition: Valuations are critical when a business is being bought or sold. They help determine a fair price and serve as a basis for negotiations.

2. Mergers and Acquisitions (M&A): For mergers, acquisitions, or joint ventures, a valuation establishes the worth of each party, informing deal structure and equity distribution.

3. Exit or Succession Planning: Valuation assists business owners in understanding the business's worth as they prepare to transfer ownership to family members, employees, or new buyers.

4. Raising Capital: When seeking investment from venture capitalists or banks, businesses often need a formal valuation to demonstrate their current worth and growth potential.

5. Financial Reporting: Certain accounting standards require companies to regularly report asset valuations for financial statements and compliance, especially for publicly traded companies.

6. Taxation Purposes: Valuations are often required for tax purposes, including gift or estate taxes, and to support tax-related transactions like setting up trusts.

7. Litigation and Divorce: Business valuations may be required in cases of shareholder disputes, divorces, or other legal matters to establish fair asset division.

8. Strategic Planning and Benchmarking: Some businesses conduct valuations periodically to assess growth, profitability, and performance against industry benchmarks.

When / How often?

The frequency of business valuations depends on the company’s goals, industry dynamics, and any major changes within or outside the business. Here are some common guidelines:

1. Every 1-2 Years: For growing businesses, frequent valuations help track progress and market shifts.

2. Event-Driven: Conduct valuations during key events, such as ownership changes, capital raising, or major business expansions.

3. Annually for Investor-Dependent Companies: High-growth companies, especially those seeking external investment, benefit from yearly valuations to demonstrate growth.

4. Every 3-5 Years for Stable Businesses: For established firms in steady industries, a valuation every few years is generally enough to monitor long-term performance.

Regular valuations support strategic decisions, improve exit planning, and help capture opportunities.

Where do I start?

Contact Sud / Team Upclinch to initiate the conversation. Our team has a well established network of competent professionals in the business advisory aspect – including Valuation, Transaction Advisory, Financial analysis and Exit planning.