Smaller businesses, with owner income under $2,000,000, that are primarily owned and operated by individuals, are sold by business brokers. Much larger businesses, such as ones with revenues of $1 Billion or more, are marketed by Investment Bankers to a select group of potential organizational buyers. These are other companies in the industry or a related industry, Private Equity Groups, Family Offices, and other business organizations. Businesses with about $10,000,000 to $200,000,000 in revenues are sold by M & A intermediaries. Since the potential buyers for these businesses are primarily other businesses, these M & A advisors use the same process as Investment Bankers to market the businesses. That process includes creating a list of the best potential business buyers and contacting them directly about the business for sale.
The business that doesn’t fit this model is the smaller business with owner income under $2,000,000 that are ones that individuals are not very interested in buying. The primary reason for the lack of interest is the specialized training or experience that the business requires. Few individuals have this training or experience and it would take a long time to get it. Most business brokers are not interested in doing the kind of work it requires to successfully sell these businesses. They prefer to sell businesses that appeal to many individual buyers using the same marketing process as they use for other businesses.
Most M & A advisors are not interested in marketing these businesses because the fees they will generate are below their minimums. Also, because the business is small, there are more potential buyers for it and they may not do the Internet and other marketing to reach them. In order to market these businesses, we combine the methods used by investment bankers and business brokers to reach the most potential buyers. We market businesses on our website using SEO and Adwords, we use Constant Contact to reach our buyer database of almost 3,000 buyers, we market on the leading Internet business-for-sale websites, and we market through BBANE, a regional co-broke group. These reach many potential individual buyers and some industry buyers. But, they only reach a few of the potential organizational buyers – only the ones actively searching on the Internet for a business to buy. So how are the industry buyers for these businesses reached? By the same method as the investment banker uses. We put together a list of potential buyers and reach out to them directly. This is a very time-consuming process. Most M & A advisors are not interested in marketing these smaller businesses because the fees they will generate are below their minimums. Also, because the business is smaller, there are many more potential buyers for it and they may not want to do the Internet and other marketing to reach them.
Although the Investment Banker and M & A Advisor earn large success fees (commissions) upon the sale, they also receive upfront fees for doing this engagement. The primary reasons for the fees are two-fold, one is to have some compensation for the significant work to identify and target the best company buyers for the business and the other is to have some “skin in the game” from the business owner. Businesses that are put on the market by owners who have skin in the game have a much higher probability of selling.
The owners of smaller businesses need to recognize when the most likely buyer is a business rather than an individual. They then need to find an M & A advisor who will do a targeted search for potential buyers and the mass marketing (such as using the Internet) to reach other buyers that are not identified. Because their business is smaller, there are many more potential buyers than for a much larger business that only a few large organizations can afford. Also, because of their smaller size, it is likely that some potential industry buyers may not be identified. Some may be located out of the country. And, some individuals are potential buyers. That’s why, to be successful, the M & A advisor needs to combine the targeted search with a good Internet advertising program.