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BROKER OR INVESTMENT BANKER?
The distinction between brokers and investment bankers (IBs) is clear-cut. It's all about size.
Brokers usually work out of one office and comprise three or four people. A good company will do a terrific job on smaller deals -- certainly up to the $10 million range. And because their overhead is quite low, brokers represent a very cost-effective solution for sellers of small to medium-size companies. Also, there is intense competition in the broker domain. The fact that so many firms are vying for deals helps drive down prices. So never accept a broker's first quote; you can virtually always do better if you hold out a little.
An investment banker, however, is registered as a broker/dealer and runs several offices, with at least 20 or 30 employees. The firm will have in-house analysts, accountants, and other experts. With its extensive infrastructure, an IB is a logical choice for larger deals.
SELLING YOUR COMPANY DANGER POINTS—WHERE, WHEN, AND HOW DEALS GO BAD
In my experience, the most common pitfalls sellers fall into are the following:
Cheapness. The founder doesn't want to shell out to hire professionals to help sell the company. It's downright foolish to hire bargain-rate amateurs instead because they often make serious mistakes -- such as poorly structure terms or an unworkable earnout -- that can end up costing the owner a couple of years. As the saying goes, "You get what you pay for." This is especially true in M&A.
Stubbornness. The founder doesn't accept what potential buyers offer, believing the bids to be too low. At the same time, the owner refuses to get a valuation. The upshot of such an impasse is rarely favorable for the owner.
Nonadherence. Entrepreneurs tend to be cowboys and to disregard some of the drudgery of following sound business practices or principles. They don't necessarily do anything downright fraudulent, just improper or inadequate documentation or procedures. Such problems often lead to a big mess during the due diligence process, resulting in failed deals. All this can be avoided, however, if owners take the advice of a good CPA and attorney.
Unrealistic integration goals. The postdeal integration phase can be very tricky, especially in earn-out situations. If an owner agrees to unrealistic integration goals, he or she might not even get paid.
Inadequate resources. M&A is more expensive than many sellers realize. Sometimes an owner doesn't have adequate money available and ends up holding the bag if the buyer walks.
