M&A Advisors

The term “M&A advisor” covers a broad category of professionals who specialize in M&A transactions of various sizes. Throughout this book, when I refer to M&A advisors, I’m referring to this broad spectrum of M&A specialists, including both M&A intermediaries and investment bankers. I use the terms M&A advisor, investment banker, and banker interchangeably. Here’s a general breakdown of these categories: 

  • M&A Intermediary: Sells businesses from $5 million t0 $100 million in annual revenue
  • Investment Banker: Sells businesses with more than $100 million in annual revenue and also offers other services, such as raising capital

To borrow another sports analogy, think of your M&A advisor as your quarterback. They’ll play a major role throughout the transaction, from the opening kickoff through to the final seconds. Your M&A advisor will initially help you package your company for sale, which will include valuing your company, identifying any issues that need to be addressed before you put your business on the market, and preparing the essential sales documents. 

Once the preparation is complete, your M&A advisor will put your business on the market, contact buyers, and manage your negotiations. They will also work closely with your M&A attorney in negotiating the letter of intent (LOI) and purchase agreement. Your M&A advisor will negotiate with the buyer regarding the high-level elements of the transaction and how the various components work together to form the overall deal structure. In contrast, your M&A attorney will negotiate the finer details of the agreements.

Types of M&A Advisors

Following is a deeper examination of the two primary categories of M&A advisors:

M&A Intermediaries

  • M&A intermediaries specialize in selling middle-market businesses, or those with annual revenue from $5 million to $100 million, although there’s no universally agreed-upon range of what constitutes the middle market. The middle market can be further segmented into the lower-middle market, the middle-middle market, and the upper-middle market. This book is geared at businesses operating across this range of sizes that constitutes the middle market.
  • There are approximately 3,000 to 5,000 M&A intermediaries in the United States. Most M&A intermediaries represent sellers, although a minority specialize in buyer representation. 
  • Most M&A intermediaries work solo or as part of a boutique firm. A few larger firms specialize in the lower-middle market, although they are in the minority. Some M&A firms focus on specific industries, but the majority are generalists. Many firms offer additional services, such as financing, recapitalizations, and management buyouts, but these are ancillary services for most firms.
  • The majority of M&A intermediaries charge upfront fees, sometimes called a retainer, in addition to a success fee. Some may also charge a monthly retainer. Typical success fees range between 2% and 8%. Standard fee arrangements include the Lehman and Double Lehman formulas, which charge a higher percentage on the first few million, such as 8% on the first million, and a lower percentage on successive amounts, such as 6% on the second million and 4% on the third million. I’ll go into more detail about these fee structures later in the chapter. 

Investment Bankers

  • Investment bankers specialize in selling larger businesses, typically those generating more than $100 million per year in revenue. Be aware that the term “investment banker” is regularly and loosely used by M&A advisors to identify themselves due to the lack of a catchy moniker for those specializing in the middle market – “M&A advisor” sounds clunky. 
  • Many of their clients include publicly traded companies. Investment banking firms also offer many other services, such as asset management, trading, equity research, raising debt financing, IPOs, and banking.
  • There are fewer investment banking offices than M&A firms. Most investment banking firms are larger and have more support staff. However, there are some boutique firms specializing in the lower end of the market with companies between $100 million and $250 million in revenue.

Other Industry Professionals

There’s a diverse array of other professionals in the M&A world. The following section gives you an overview of some of the other professionals you may encounter. 

Exit Planners

  • There’s little crossover between those who sell businesses and the fragmented collection of other professionals who help business owners prepare for the sale. In other words, the advisors who help entrepreneurs prepare their business for sale don’t normally help them sell the business and vice versa. As a result, there’s often a disconnect between exit planning and the actual exit for most entrepreneurs. How can an exit planner help you prepare your business for sale if they’re not actively engaged in the marketplace and are unfamiliar with the buyer’s preferences in the current marketplace?
  • My hypothesis why most M&A advisors don’t assist in preparing a business for sale is that doing so requires a different mindset, a different set of skills, and a different process than selling a business. Processes and tools need to be created to advise owners and they are too busy doing deals to create these processes. I’ll go into detail later in this chapter about how most advisors simply don’t have the manpower to create the processes because of how most offices are structured. 

Commercial Real Estate Agents

  • Many commercial real estate agents sell businesses that include a real estate component or specialize in commercial property, such as hotels, motels, or storage units. Some commercial real estate offices are active in the business marketplace, though the majority consider this a minor segment of their business. Most commercial real estate agents charge a 4% to 6% commission, with declining amounts as the purchase price increases. Most work on straight commission, but there are a few who charge upfront fees.
  • It’s best to hire a specialist if you have a business with a substantial real estate component. For example, if you own a hotel, hire a hotel broker. But it may be difficult if you’re located in a smaller state, as every state requires a real estate license to sell real estate. If this is your situation, you may need to hire an out-of-state broker who can cooperate with a local broker. Most states’ real estate departments allow an out-of-state broker to cooperate with a local broker if they aren’t licensed in the state. 

Business Appraisers

  • Most business appraisers only value businesses for tax or other legal purposes. They rarely sell businesses, but most will appraise a business for any owner, for any purpose, including for exit planning purposes. In my opinion, you’re better served by someone active in the marketplace as they’ll be able to best advise you on how to increase the value of your company, and their knowledge will be rooted in the real world.
  • Appraisals can cost $1,000 at the low end for a verbal opinion of value, up to $5,000 to $10,000 for a company with sales of $5 million per year, and up to $20,000 or more for larger companies.

Office Structures

Knowing how an office is structured is vital because it tells you how that business operates and the level of skill, knowledge, and professionalism you can expect. Incentives are also necessary to consider. While the reputation of the firm is helpful to know, what matters most is the individual you hire, not the office.

Here’s a breakdown of how most M&A offices are structured:

Solo Offices

  • Operated by one advisor, sometimes with an assistant. However, most solo advisors don’t have any support staff or assistants.
  • A solo advisor must be a jack-of-all-trades – from answering the phones and fielding basic email inquiries to negotiating the purchase agreement.
  • Many industry specialists happen to be solo operators.

Small Offices

  • Smaller offices usually have fewer than 10 dealmakers. 
  • The owner is typically an active dealmaker and manages the staff part-time, therefore:
    • If you hire an advisor who is also an office owner, you should realize their time is split between managing the office and selling businesses. 

Large Offices

  • Larger offices typically have more than 10 dealmakers.
  • Most large offices have an owner and an office manager, or full-time person who manages the staff. 
  • The least experienced professionals in the industry tend to be dealmakers at larger offices. This is where most people gain initial experience in the industry before branching out on their own.


Most M&A advisors charge upfront fees, in addition to a success fee. Usually called a retainer, the fee varies from as low as a few thousand dollars to more than $50,000. Most also have a minimum success fee in the range of $50,000 to $250,000 if the business is sold. 

The most common fee structures are the Lehman and Double Lehman formulas, a compensation structure developed decades ago by former investment banker Lehman Brothers. There are other variations on the Lehman and Double Lehman models. For example, some M&A advisors may begin at 8% on the first million and level out at 4%.

Lehman Formula:

  • 5% on the first million, plus
  • 4% on the second million, plus
  • 3% on the third million, plus
  • 2% on the fourth million, plus
  • 1% after that.

Double Lehman Formula:

  • 10% on the first million, plus
  • 8% on the second million, plus
  • 6% on the third million, plus
  • 4% on the fourth million, plus
  • 2% after that.

Under the Double Lehman formula, if a business sells for $5 million, the fee would be: $100k (10% on the first million) + $80k (8% on the second million) + $60k (6% on the third million) + $40k (4% on the fourth million) + $20k (2% thereafter) = $300k. 

The Agreement

Here are a few other significant considerations to keep in mind when determining whether to work with a firm:

  • Length of Agreement: Most firms require a one-year exclusive agreement, but this is sometimes negotiable. On average, the process of selling a business takes 6 to 12 months, though it can sometimes take much longer. 
  • The Tail: Regardless of how long your agreement is, at the end of the contract, the firm you hire should provide you with a list of potential buyers they generated throughout the contract if your business doesn’t sell. You’ll then be obligated to pay a fee if you sell your business to one of those buyers following a specified amount of time after the expiration date of the agreement, called a “tail.” Most tails are 24 to 36 months in length.
  • Cancellation of the Agreement: Discuss contract cancellation rights with the firm you hire. Some agreements allow you to cancel at any time, while others don’t. Most agreements require paying the full fee if you remove your business from the market, such as if you change your mind, so be 100% sure you want to sell if such a clause exists. 

Deciding on a Local vs. National Firm

Changes in the way the world operates need to be considered when you’re looking to hire an advisor. The world economy is evolving in ways no one could have predicted, even a decade ago. Auto manufacturers, grocery chains, and most other companies that started as brick-and-mortar businesses are changing the way they operate to online models, especially when it comes to marketing and sales.

Former Speaker of the U.S. House of Representatives Tip O’Neill famously declared, “All politics is local.” Is this true of selling a business, as well? The internet has changed the way this industry works, but has it affected how businesses are sold? 

No advisor will ever know your business as well as you do. Selling your business is a team effort, and you’re a critical element of the team. 

As a general rule, most local firms are less likely to embrace technological changes in the industry and, as a result, use fewer technological resources that are now necessary to find and arrange the best transactions for their clients. Today, most businesses are bought and sold virtually, documents are signed digitally, and transactions that once took weeks to close are now completed in a matter of minutes, so being local is rarely necessary. 

In most cases, your advisor doesn’t necessarily need to know the local market. To maximize the price, an advisor needs to know how to effectively package and confidentially market your business for sale and get it in front of as many potential buyers as possible – in other words, they need to be experts at the private auction process. The most effective auctions include buyers at a national or even international level.

Hundreds of thousands of small businesses now sell their products to a worldwide clientele because customers can find them anywhere there’s internet connectivity. Why limit your buyer pool to those within a narrow physical radius? Local connections are valuable when looking for a mechanic, plumber, or roofer. The same doesn’t apply to finding prospective buyers for a middle-market company whose audience includes international suitors. 

While staying local is appealing for many services, there are some downsides to keep in mind when considering a local firm to sell your business. These potential disadvantages include: 

  • Less Innovation and Technology: Working on a national scale requires advanced technology, and not all local firms have made this investment.
  • Limited Scope of Experience: Unlike local firms, intermediaries who operate on a national or international basis are exposed to a wider variety of situations, deal types, and circumstances. This increases their knowledge base, resourcefulness, and pattern-recognition capabilities.
  • Limited Selection: In many cities, you will find only a small pool of local M&A advisors from which to choose, many of whom are industry generalists.

The following are a few situations in which hiring a local professional is necessary:

  • In-Person Appraisals: For certain types of business appraisals, a site visit may be required.
  • Knowledge of State Tax Code: Hiring an in-state certified public accountant (CPA) is recommended if your state has personal or corporate income taxes.
  • State Bulk Sale Statute: If your state is one of the few states where the bulk sale statutes have not been redacted, such as California, I recommend hiring an in-state escrow agent or attorney, although it’s not necessary to hire a local M&A advisor. 

I speak from experience. I started out as a traditional local advisor in Ohio, Nevada, and California for more than eight years before making the transition to a firm with a global client base. During that time, one example stands out:

While working in Southern California, I was contacted by the owner of a manufacturing firm in Northern California who wanted to sell his business. I told the owner that I was in Southern California, so it wouldn’t be feasible for me to handle the transaction. He stopped for a second, sounding puzzled, and asked why I needed to meet with him. I had no idea what to say. I always assumed the only way to do business was to meet with clients in person. That moment was a revelation. I stuttered, paused, then jumped at the opportunity. Within 18 months, I turned our business model upside down. Since 2009, I’ve operated 100% virtually.

I’m not alone. Many industries have moved past a brick-and-mortar philosophy and are embracing new opportunities in the digital marketplace, including mine. This evolution in our industry forced me to question the utility and effectiveness of conventional industry standards and has led to many of the insights and advice that I outline in this book. 

Questions To Ask When Hiring an M&A Advisor

When hiring an advisor, background knowledge of their office and fee structure only goes so far. Here are some questions you should consider asking when hiring an M&A Advisor:

Does the firm specialize in your industry?

Industry specialists have a big leg up on generalists. From knowledge of current multiples to who the best buyer may be for your business, industry experts bring specialized knowledge and contacts to the table that can’t be offered by someone who doesn’t have in-depth knowledge of your industry.

Does the firm work solely on commission? 

Firms that work solely on commission are disincentivized from spending time working on your sale. A straight commission model incentivizes a firm to sell your business as quickly as possible with the least amount of effort expended. If you don’t want to be rushed, it may be preferable to work with a firm that charges upfront fees in addition to a success fee.

Firms that work on straight commission must also pad their fees to account for the businesses they take on but don’t sell. For example, if the firm has an 80% success rate, they must find a way to receive compensation for the work they put in on the 20% of the businesses they fail to sell.

A straight commission structure can also cause bias and misalignment between the owner and the firm. The more time the firm invests in selling your business, the more they’ll feel the need to recoup their investment. A firm that charges an upfront fee for services will feel this pressure to a much lesser extent, and your interests are more likely to be closely aligned with the firm’s interests.

Does the firm charge upfront fees? 

Some assert that upfront fees should be avoided at all costs. Their premise is that “only salespeople who work on straight commission should be trusted,” which I shouldn’t have to tell you is a weak assertion, at best. Based on this premise, accountants and attorneys shouldn’t be trusted because they don’t work on straight commission, and car salespeople should be trusted only if they work on commission. 

Most professionals are fee-based, but due to the nature of an M&A transaction, few business owners would be willing to pay tens or hundreds of thousands of dollars in fees only to have a transaction fail at the last minute. As a result, most M&A advisors charge fees for services, along with a success fee on the back end. 

But the truth is, the more experienced the firm, the higher the likelihood they’ll charge upfront fees, especially if they invest a significant amount of time preparing and packaging a business for sale. As a result, most M&A advisors will be reluctant to put in the work without being paid upfront for their expertise. 

Does the advisor have support staff, or do they do everything on their own? 

Selling a business is a difficult multi-disciplinary task that requires a wide range of skills in disparate areas. Most investment bankers have a team of specialized support and rely on both internal and external experts. The most efficiently operated offices have developed scalable systems for the repeatable elements in the sales process, such as financial analysis, valuation, marketing, packaging, screening buyers, and closing, with each process handled by an expert in that field. The best operations I’ve seen run like a surgeon’s office, where the most experienced advisors handle the most complex tasks while a variety of other staff members deftly execute well-documented and defined processes within a flexible framework. This is precisely how my firm, Morgan & Westfield, operates.

The size of the support staff has an impact on the level of professionalism the firm demonstrates and on the quality and efficiency of your transaction. Generally speaking, the more support staff the office has, the higher the skill level of everyone involved. After all, it’s easier to specialize in one specific area than to try to be an expert in all areas. If you find that your brain surgeon is also in charge of the clean-up crew, perhaps it’s best to look elsewhere – the same goes for the team of experts you plan on hiring to handle the most important business transaction of your life.

Selling a business is a difficult multi-disciplinary task that requires an enormous amount of skills in disparate areas.