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What is the Difference Between a Business Broker and an Investment Bank?

By Generational Equity

Business Broker or Investment Bank

The answer to this question is this: Plenty!

Now at the outset let me say that business brokers play a key role in the M&A world. In fact, they do a great job handling smaller transactions (typically those valued below $1 million) and are important to that segment of our economy.

So, if you can’t afford an investment bank, especially one that focuses on the lower middle market (transactions valued from $1 million to say $50 million), then by all means use a business broker. But keep in mind that you get what you pay for and here are some of the key differences:

  • Local vs. National/International Scope
  • Number of Deals Completed Annually
  • Number of Valuation Associates on Staff
  • Number of Dealmakers on Staff and Depth of Experience
  • Number of Associates Overall
  • Access to External Buyer Databases
  • Creation of Proprietary Internal Buyer Databases
  • Relationships with Private Equity Firms
  • Relationships with Active Strategic Buyers
  • Industry Awards and Accolades
  • Full Range of Cradle to Grave Services (Strategic/Tactical Growth Strategies, Wealth Management Services, etc.)
  • Typical Fees Charged
  • The Company That You Keep!

In all these categories, an experienced investment bank like Generational is a far better choice, again, depending on your company’s size. Generally speaking, middle market investment banks are not localized in their buyer relationships, they are national and international which is key to an optimal deal. We deal with buyers throughout the world and have developed solid relationships with them.

A local business broker may close 2-3 transactions annually. Last year Generational closed 172 transactions and we are on a pace to break that number in 2022. Refinitiv ranked us as number one for deals valued up to $25 million and number two in deals up to $100 million in 2021 (FYI, no one has closed more deals in the middle market the past nine years than Generational).

Both our Valuation Team and our Dealmakers, which number over 50 people, are some of the finest professionals in our industry. Overall, we have over 300 Associates located throughout our 16 offices in North America. Most business brokers have 2-3 members. Our Dealmakers are some of the most experienced in the middle market, having extensive years in closing deals. One other item to note: our deal teams are focused exclusively on selling businesses, they don't work in business development, allowing them to work solely on finding buyers. Brokers have to split their time between finding new business AND closing deals.

External M&A databases are extremely expensive. We have the size and scope of budget to have multiple licenses across our teams giving them access to leading research products such as Standard & Poors Cap IQ, IBISWorld and many others. In addition to external sources, we have a proprietary buyer database of over 35K active buyers which we call DealForce. These buyers have told us specifically what they are looking for in acquisition targets and we are able to provide them with a funnel of qualified sellers. This is a huge difference between a broker and an investment bank and it is a significant benefit to our clients.  

Private equity firms (PE) have gotten more and more active in the past 10 years in the middle market. They have learned that it is far less risky to make a number of smaller acquisitions called “add-ons” in a specific industry than to “bet the farm” on a single much larger acquisition. Because of this, a substantial number of the buyers in our proprietary buyer database are PE firms. Most business brokers focus on a set of buyers that they approach on a local/regional basis or on an industry level for all their deals.

Another advantage to using a middle market investment bank is that a firm like Generational has years of established relationships with thousands of active strategic buyers as well. Knowing what a strategic buyer is looking for, either vertical or horizontally, is a huge advantage to you the seller.

One more big difference: Firms like Generational have the industry accolades to prove their ability to provide great service. Most business brokers, because of their smaller scope, do not have this ability. For example, here are just a short list of industry awards we have won:

This is just a small sampling; you can see a full list of our accolades here.

Perhaps most critical to business owners, is that middle market investment banks like Generational can provide a full range of services to their clients. For example, if a client’s business is not “buyer ready” our experienced consulting firm can provide tactical and strategic growth plans that, over time, can prep a company to grow, flourish, and reach new levels of productivity and profitability.

Once we sell a company, our wealth advisory firm is there to protect and grow a client’s newly found wealth and financial legacy for years to come. Both of these services are really unique to middle market investment banks. Most business brokers sub-contract these services to third parties (if they provide them at all).

One other key point is the differences in fees charged by brokers vs. reputable investment banks.  Most brokers do not charge an upfront or commitment fee; investment banks do in order to ensure you are committed to the process and cover the costs of the services outlined above. However, what brokers often do is make that up on the "success fee" (the fee charged when a deal closes). Most brokers charge between 10-12%, most investment banks use the double Lehman success fee formula which usually averages out to between 3-6% depending on the size of the deal (and in the case of Generational, the commitment fee is refunded back out of the success fee).

Finally, as the old saying goes, they know you by the company that you keep, i.e., who you are associated with professionally. Our firm has a number of strategic alliances, including:

  • The Nicklaus Companies
  • Vistage Worldwide
  • The M&A Advisor
  • CIBC
  • Harvard Business School
  • The Association of Corporate Growth (ACG)
  • The Exit Planning Institute
  • The Alliance of Merger & Acquisition Advisors (AMAA)
  • The Hargrove Firm

Some business brokers may belong to the ACG or the AMAA, but the other relationships listed above would be beyond the reach of most.

So, you can see that there are substantial differences between a business broker and a middle market investment bank like Generational. And this is just a short list.

Again, business brokers play a key and vital role at the lower valuation levels of our economy. However, as we discussed a few weeks ago in an Insight post, as with all things, you really get what you pay for and as we see it, hiring a firm like Generational is not a “cost” but an investment in the future for not only you, but your company. It is well worth it according to our clients:

To discover more of what we can offer you compared to your local business broker, please either call us at 972-232-1121 or visit our website and leave us with your contact details. Again, our services are not for every business owner, and we realize that. But we truly believe that the scope of what we offer provides our clients with the best possible opportunity for an optimal deal.

Carl Doerksen is the Director of Corporate Development at Generational Equity.

© 2022 Generational Equity, LLC All Rights Reserved

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T.D., thank you so much! You are a great leader! I love how you are using your gifts and talents to better others. You are clearly a GREAT COACH! This 3 day session undoubtedly changed the future of our business, and very well may have been the sole catalyst to save my company, my health and my marriage! A genuine “thank you” from the bottom of my heart.
Bryan D. Horn, Owner, Over Under Clothing
We knew it would be a difficult task to have someone really understand our business and our market, prior to researching a possible buyer, so it was imperative that we found someone of your caliber, with definite proven experience in this area.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
We were happy to see the interest in our company and what we cherished has not just a valuable company but an important company to the communities we served in.
Larry Moore, Owner, A Company Portable Restrooms
Greetings Mike. Thank you for the captivating and compelling presentation you made at the Phoenix presentation last week. Over many years in business yours was the most informative and well-presented presentation, on any subject, that I have ever attended! Your energy and enthusiasm combined with your concise and captivating support of your positions with easily understood examples and data was compelling.
Pete L.
Thank you again for all your guidance and support. Any company will achieve what they intend, if they have you on their team!
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
Generational Equity’s assistance was invaluable in compiling and marketing our business.
Bil MacLeslie, CEO, ipHouse
The process was much more involved than I expected and your help, experience and advice was a big factor in making the negotiations go as smoothly as possible.
Terry D. Wickman, President, Keytroller
The professionals at Generational Equity then helped develop a roadmap for enhancing the value of the firm and an evaluation report. This was completed by June 14, 2021. We then developed the Confidential Information Memorandum and put Taylor Studios, Inc. on the market by July.
Generational Equity’s professional staff helped me every step of the way. Their network and professionals are the only reason I sold my company this quickly. For me this is a once in a lifetime sale and I was unfamiliar with the process. I was able to lean on them with questions and concerns.
Betty L. Brennan, President, Taylor Studios
I am pleased that I was able to work with Andrew Byrd throughout this experience. From the first meeting we had in Minneapolis I felt that I was in good hands. His knowledge and expertise is second to none. He guided the process consistently throughout. I feel lucky that I was pared with Andrew and could not be happier that I chose Generational Equity to handle this major life event. Thank you Andrew and GenEq for everything!
Eric Erlandson, Owner, Action Fastenings, Inc.
We were represented by Michael Goss with Generational. The due diligence was grueling and exhausting, but Michael propped us up and kept us motivated throughout the process. Debi and I continued to ask each other how we could possibly make it through this process without the assistance of Michael. Michael's professionalism and knowledge is absolutely amazing, and we are so blessed to have had him by our side as we made our future dreams come true.
Bob and Debi Lee, Owners of BL Technology, Inc and BL Tl Services, LLC
I wanted to take this opportunity to thank you for all that you have done for us. Not only did you take care of all the aspects of the sale but took extra care to make sure we knew what it looked like every step of the way. I will definitely recommend your company to anyone that is in a position to or looking to exit their business.
Shane and Johanna Kline, Owners of Vision Upfitters
We thank you Eric and Generational Equity making our dream come true.
Larry Moore, Owner, A Company Portable Restrooms
After attending a conference with GE, I decided that the value they bring would be worth the expense and as soon as I started working with them, I realized that was the right decision. When we started to get LOIs, Fred Zweifel took the lead on the communication and supported negotiations throughout the process, which got tricky as we moved forward. I learned that it can be common for companies to make a great offer then work to erode that price with their discoveries, but Fred and the GE team kept that from happening.
Caroline Connelly, CEO, OptoTest
We had the pleasure of working with Mr. Ahmad Behjati Managing Director, M&A, for Generational Equity during our acquisition of Papa's Dodge in late 2021. Generational Equity and Mr. Behjati represented and marketed Papa’s Dodge. As our primary contact, Mr. Behjati was professional in every facet of this acquisition process, conveying valuable advice most times and assisting us in every step of the process.
Rick Greene of Dobbs Equity Partners LLC
Generational Equity educated and informed us – so that we could be on the upside of a good decision (to sell).
Bil MacLeslie, CEO, ipHouse
Your wisdom and experience were invaluable to me during this once-in-a-lifetime transaction.
Ralph Noblin, President of Noblin & Associates
The most important contribution I think Ahmad made was with his personality and work ethic. He is sincere, efficient, and very hard working. He was available to me at all times, whether it was for specific detail of the negotiation or just to talk through the bigger picture. He listened, advised, and recommended, but never forced his idea or opinions. In the time we worked together, he became a valued colleague and also a friend.
Salvo Stoch, Founder and CEO of Sleeping Partners
We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Rick Nowak, President/CEO, Kurz Electric Solutions, Inc.
I couldn’t have asked for a better team than Michael and Deborah. We couldn’t have done it without them.
Robert Evans, President and CEO of Mealtracker Dietary Software
I would like to thank you and your firm, Generational Equity, for being our valued advisors in our journey.
Bil MacLeslie, CEO, ipHouse
I wanted to write you a quick letter to express our appreciation and our delight on the outcome of helping us through the process of our recent sale. We are very happy with the end result, and are very happy to be able to move forward with all of our future growth plans.
Terry D. Wickman, President, Keytroller
Through the sale process, Generational brought in several interested buyers and we closed in about 6 months. I am so glad I accepted that invitation to the conference and could not be happier with the whole process. The team at Generational coupled with their knowledge and guidance was so valuable that in the end, I know I could never have done this on my own!
JoAnn Ellis, Owner of Fondren 5 Star Kennels
Michael worked tirelessly, He followed every lead meticulously and urgently to make sure nothing was missed.
Robert Evans, President and CEO of Mealtracker Dietary Software
I need to say an immense thank you to Don Ho for his stellar work ethic, attention to detail, and tireless effort. Also thank you to the whole crew at GE! Without you, Don could not do such a phenomenal job. We were shooting for closing and funding before the end of 2020, due to the uncertainty of the political landscape and taxes. I am happy to report we closed last week and will be funding tomorrow.
Dr. Caty J. Catron PhD, RN, VA-BC – Owner, Vic The Picc, LLC
I quickly recognized that Don was working for Sharpe Mixers above all else, and held our interests above others.
Jay Dinnison, Owner of Sharpe Mixers
I decided to attend the conference and hopefully receive some guidance on how to structure an exit plan of my business. Upon arriving at the conference, I was so impressed with the presentation given by Generational Equity that I set a future appointment that week to discuss the possibility of selling my business with their Senior Managing Director David Robinson.
JoAnn Ellis, Owner of Fondren 5 Star Kennels
The help you provided us during each step of this process made us feel very comfortable and confident we were selecting the right approach to transition our Company.
Andy Graham, Vice President, Modern Heating & Plumbing
I must say that I have never worked with a more driven, competent and focused individual as Don Ho.
Jay Dinnison, Owner of Sharpe Mixers
Thanks to you, the entire GE team and especially Michael Goss for driving a great valuation, coaching me and driving the process across the finish line. Please let me know if there is anything I can do to support GE going forward. P.S. Given my experience with GE I felt comfortable enough to sign up with Generation Wealth Advisors!
Tom Currier, Former President & CEO, Rackmount Solutions