M&A Advisor vs Investment Banker vs Business Broker

M&A Advisor vs Investment Banker vs Business Broker

The terms “M&A Advisor” and “Investment Banker” are often used interchangeably when talking about fostering a corporate transaction. M&A advisors and investment bankers assist in selling companies to other industry strategic companies or institutional investors (i.e. family offices or private equity funds).  They also work closely with larger buying institutions helping source companies for acquisition.

M&A advisory firms and investment banking firms are similar in their services, although there are some distinct differences. Essentially M&A advisors bridge the market gap between large transactions that are clearly led by institutional investment bankers (those where the deal size is typically greater than $250 million), and on the lower end those transactions which are usually facilitated by business brokers (typically less than $2-$5 million). Investment bankers typically offer a broader range of services and work with much larger corporations.  Such services include public stock transactions, fairness opinions, public stock offerings, etc.   These transactions require broker-dealer licensing in order to facilitate trades and transactions, where M&A advisory firms as a rule of thumb work with privately held businesses with revenue less than $250 million and often EBITDA less than $25 million.

In practice, lower middle market transactions (private companies with less than $250M in revenue) do not require the advisor to be broker-dealer licensed as long as they comply with regulatory guidelines. Thus, you will find that the majority of middle market M&A advisory firms often partner with a major investment bank when regulatory requirements necessitate.

In general, investment bankers are highly transaction driven, focus on volume throughput and have minimum fee expectations, which tend to limit the size clients that they serve to larger institutions.  M&A advisors tend to be boutique in culture and consultative in nature and may work with small to mid-market clients in the strategy and planning phases as they consider their exit, liquidity or succession alternatives, then utilizing the deeper knowledge of the company they manage the transaction process often yielding highly successful outcomes. 

Both M&A advisors and investment bankers run a process to sell a company that is proactive and usually focused on creating a competitive and timed environment for the seller, with the goal of optimizing the value and reaching the seller’s objectives. Unlike passive processes used by business brokers (listings), the actively managed process of M&A advisors often adds significant value to the transaction in many areas. The seller should look at fees not as a cost, but as an investment with an expected return.  See more here: Value of an Investment Banker in the M&A Process