Business Brokers, Investment Bankers, and M&A Attorneys: Maximizing Business Sale Outcomes

You might question the necessity of involving business brokers or investment bankers if you already have a potential buyer in mind. Many of our clients move forward with the “bird in hand” and close the sale with an M&A attorney without ever engaging the services of a business broker or investment banker. There is nothing wrong with selling to a buyer you already know and trust, and in some cases that is absolutely the best path forward. However, it's important to recognize that relying solely on your immediate network may only uncover a fraction of the potential opportunities out there. Business brokers and investment bankers bring valuable experience, backed by extensive market knowledge, insights into industry trends, and a thorough understanding of competitive landscapes. By enlisting their services, you tap into their vast networks comprising both strategic and financial buyers. This broader exposure not only attracts a larger pool of qualified buyers but also fosters a competitive bidding environment, ultimately driving up the sale price of your business and creating the opportunities for more favorable payment terms.

As an experienced M&A lawyer, I have witnessed firsthand the remarkable benefits that can arise when sellers venture beyond their familiar circles and enlist the expertise of business brokers or investment bankers. By embracing these professionals, you unlock new opportunities to maximize the value and success of your business sale, while also gaining valuable insights into how potential buyers perceive the worth of your business.

However, many business owners are concerned about advertising their business or using a broker for fear of ‘word getting out’. Owners don’t want to risk losing employees or customers due to a pending change of ownership. As such, owners often forego any general marketing efforts, and avoid hiring a broker, in order to keep their plan to sell confidential. However, business brokers and investment bankers have strategies to mitigate this concern. Their strategies include marketing the business on an anonymous basis. General information is provided but not the name, specific location, or other identifying information. Only after a potential buyer has been identified, approved by the owner, and signed a confidentiality agreement, is the name of the business shared.

Understanding the Distinct Roles of Business Brokers, Investment Bankers, and Corporate Attorneys in Unlocking Business Sale Potential

Business brokers specialize in facilitating the sale of smaller businesses, including franchises and small-scale enterprises, typically characterized by revenues under $10 million and cash flow (EBITDA) under $2 million. They possess local market expertise and navigate transactional challenges and opportunities with finesse. Licensed by the Department of Real Estate in California and affiliated with organizations like the California Association of Business Brokers (CABB), they provide access to pre-printed legal forms such as a Letter of Intent (LOI), Asset Purchase Agreements, and Stock Purchase Agreements. These standardized forms streamline documentation, akin to real estate deals and expedite transactions. While business brokers typically handle smaller deals involving owner-operators as both sellers and buyers, their collaboration with corporate attorneys ensures a deeper understanding of the risks and legal issues associated with the sale.

Business brokers can work on behalf of either the buyer or the seller and occasionally represent both sides in a transaction. However, it’s important to consider the associated costs when engaging with a business broker. Typically, their fees consist of a commission and a fee. Due to the relatively smaller size of these deals, business brokers often charge a higher percentage, usually around 10%. In comparison, investment bankers involved in larger transactions may charge fees ranging from 6% to 8% or have a sliding scale structure. In addition to commissions, business brokers may also require an onboarding fee. This fee covers activities such as familiarizing themselves with the business's financials, assessing the need for further preparations, providing a valuation opinion, developing a marketing strategy, and creating a pitch deck. While these costs should be taken into account, it’s worth noting that a skilled and competent business broker can deliver substantial value and prove to be a worthwhile investment in the success of the transaction.

In contrast, investment bankers offer a higher level of sophistication and training, making them valuable in larger business sales. With expertise in financial models, evaluating financial statements, and creating sophisticated forecasts, investment bankers excel in managing complex transactions involving large corporations, private equity funds, and various stakeholders. Their extensive reach helps identify suitable buyers, including competitors and private equity funds with portfolio companies in related industries. Investment bankers are comfortable working with added complexities such as multiple locations, multiple product lines, national or global supply chains and distribution networks, and even different business divisions. Operating on a fee structure with higher upfront costs, investment bankers align interests, evaluate buyer suitability, conduct auctions to generate the highest price with the best terms, and manage the entire process confidentially and professionally. Their strategic approach safeguards the seller's long-term interests and improves optimal buyer-seller matching.

Throughout the sale process, M&A attorneys collaborate with the business broker or investment banker while representing the best interests of the attorney’s client (whether buyer or seller). An experienced M&A attorney helps buyers and sellers negotiate the terms of the LOI and the Sale Agreement to suit the unique aspects of the business being sold. Every sale includes a combination of legal, tax, and practical business considerations that an M&A attorney identifies and addresses. For example, in an asset sale structure, the seller must handle employee terminations and accrued benefits, even if the buyer intends to re-hire them. In California, accrued vacation days can be rolled over to the new buyer instead of being cashed out at closing if agreed upon by the parties. M&A attorneys address these issues early in the process and incorporate them into the LOI and Sale Agreement. Through a comprehensive business review, they help buyers and sellers navigate the intricacies of a business sale with confidence, knowing that their interests are safeguarded, and every aspect of the transaction is meticulously addressed minimizing the risk of unexpected liabilities or tax obligations post-closing.

Closing Your Deal with Confidence

Regardless of whether you engage a business broker or investment banker, our team at Adams Corporate Law are well-versed in closing deals and will be with you throughout the process to ensure that your interests are protected, all legal requirements are met, and you comprehend the issues at every step. Our services include:

  1. Preparing your business for sale: We know what Buyers are looking for, and what can hold up or jeopardize a sale. We review our client’s business documents before a sale to make sure everything has been properly papered, with signatures, so that the seller knows what they have the right to sell. We also provide feedback on steps that can be taken to enhance the value of the business and position the company for a smoother transaction.
  2. Hiring a business broker or investment banker: We help you negotiate and finalize the terms of the engagement with a business broker or investment banker. We understand customary terms and industry norms and help set expectations for working with your advisor.
  3. Reviewing the Pitch Deck: We are available to review pitch decks to confirm the statements made have back up support and are not creating a false impression of the business or its prospects.
  4. Preparing and Negotiating the LOI: The LOI can be the most important document in the sale of any business. Even though its terms are typically nonbinding, it can be very difficult to negotiate any variances from the expected terms set forth in the LOI. Accordingly, both parties need to fully understand the after-tax consequences, and all the potential issues, both practical and legal, associated with the structure, terms, and pricing set forth in the LOI. There is more to consider than just price!
  5. Preparing and Negotiating the Sale Documents: Our expertise lies in skillfully negotiating the terms of the purchase agreement, including payment terms, personal liability exposure, confidentiality, competition, employment, specific representations and warranties, and the scope and limits of the indemnification provisions. Our goal is to safeguard your interests and ensure that the transaction documents are clear, comprehensive, and legally enforceable.
  6. Closing the deal: We diligently oversee the process, ensuring that all closing conditions are satisfied, issues are handled, and the parties stay on track to address concerns raised by both sides in order to maximize the likelihood that our client’s objectives are protected.
  7. Post-Closing Follow-up: Even after the closing, there may be ongoing obligations for the buyer, such as deferred purchase price payments, indemnity escrow holdbacks, term employment agreements, post-closing tax filings, and performance earnout targets. We provide guidance and support in fulfilling these obligations.

In conclusion, you can leverage the specialized knowledge, extensive networks, and strategic insights of corporate attorneys, business brokers, and investment bankers to ensure the most favorable outcome for your California business sale. When you are ready to embark on this journey, reach out to our team at Adams Corporate Law. We not only provide expert advice but can also connect you with experienced, reputable business brokers and investment bankers who will contribute to the success of your deal! Contact us today at (714) 699-9602.

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