Business broker or M&A adviser: which should sell your business?
How the two differ, how each gets paid, ten questions to ask before you sign, and the red flags that cost sellers time and value.
Tell us the sector and rough size. A principal reads every enquiry personally, and no company names are needed.
What is the difference between a business broker and an M&A adviser?
The labels overlap in everyday use, and some firms do both, so judge the service, not the title. In general terms:
- Business broker. Usually works on smaller, owner-managed businesses. The model is typically to list or advertise the business, field buyer enquiries, and take a commission if it sells. Reach is wide, process is lighter, and the price of that reach is that confidentiality is harder to hold.
- M&A adviser (corporate finance adviser). Usually works on mid-market businesses where the buyer is likely to be a strategic acquirer, a private equity fund, a family office or a management team. The model is a defined process: valuation, an information memorandum, a shortlist of buyers approached privately, negotiation of price and structure, and support through due diligence to closing.
Neither is better in the abstract. A well-run broker is the right tool for a small business with many possible local buyers. An adviser earns its fee where the right buyer is one of a handful, the price depends on how the deal is structured, and word getting out would damage the business. For where Caban sits, see our page on M&A advisors in South Africa.
How should I decide which one I need?
Five questions settle it for most owners:
- How big is the business? Our own M&A mandates start at R4.5m or US$250k of transaction value. Below that level, a broker or a direct sale to a known buyer is usually more economical, because an adviser’s process has fixed effort that a small price cannot pay for.
- How many credible buyers are there? Many buyers points to a broker’s open market. A few specific buyers points to a targeted process.
- How confidential must it be? If staff, customers or competitors learning of the sale would hurt the business, you want a process where identity is released only after an NDA. See how to sell a business confidentially.
- Is the structure complicated? Earn-outs, vendor finance, a management buyout, property held separately or a partial sale all need an adviser who can negotiate structure, not just price.
- Do you need the owner out, or only some of the cash? A partial exit to a private equity partner is a different mandate from a full sale.
How are brokers and M&A advisers paid?
This is where sellers most often get surprised, so read the engagement letter as carefully as the sale agreement. Common elements, in different combinations:
- Retainer or work fee. A fee paid up front or monthly, regardless of outcome, to fund the preparation work. A retainer filters out unserious sellers and pays for real effort. Ask whether it is credited against the success fee.
- Success fee. Paid only if the business sells, usually as a percentage of the transaction value. Ask exactly what the percentage is applied to: enterprise value or equity price, and whether debt repaid at closing counts.
- Minimum fee. A floor that applies on smaller deals. Ask whether it applies if the buyer is someone you introduced.
- Deferred and contingent consideration. If part of the price comes later through vendor finance or an earn-out, ask when the adviser’s fee on that part is due: at closing, or when you are actually paid.
- Exclusivity and tail. Mandates commonly run for a fixed period with a “tail”: a window after termination during which a sale to a buyer the adviser introduced still triggers the fee. Make sure the tail is limited to buyers they actually approached, and that you can see the list.
- Expenses. Who pays for data room software, valuation reports and travel, and is there a cap?
We have deliberately not quoted typical percentages here. The figures published online are mostly from other markets, and fees in South Africa vary by firm, deal size and scope. What matters is that every one of the items above is in writing before you commit, and that you can explain the total cost in a sentence.
Ten questions to ask before you sign a sell-side mandate
- Who will personally run my sale day to day, and will they be on the calls with buyers?
- What is your process, step by step, and how long does it normally take for a business like mine?
- Which kinds of buyers will you approach, and how will you decide that?
- How will you protect my identity until a buyer has signed an NDA?
- How do you arrive at a price expectation, and will you put the reasoning in writing?
- What are all the fees, in what order, and what happens if the sale falls through?
- What is the tail period, and what does it cover?
- What will you need from me, and how much of my time will it take?
- Can I speak to a seller you have worked with, with their permission?
- What would make you walk away from this mandate?
An adviser who answers all ten plainly is probably a good one. One who answers with enthusiasm and no specifics is worth a second look.
What are the red flags?
- A promised price. Nobody can guarantee what a buyer will pay. A fair adviser gives you a defensible range and the reasoning behind it. Our own valuation guide explains how that range is built.
- A promised timeline. Preparation, buyer selection and due diligence all depend on how ready your numbers are. See how to prepare your business for sale.
- Identifiable details on a public listing. If a stranger could work out which business it is from the advert, so can your staff and competitors.
- Pressure to sign exclusivity before you have seen the process.
- Vague answers about who does the work. A principal pitches, a junior executes: that is common, and you should know it before you sign.
- Refusing to explain fees clearly.
Do I need an adviser at all?
Not always. If a specific buyer has already approached you, such as a competitor, a supplier or your own management team, you may only need an attorney and a tax adviser, and perhaps an adviser to test the price. If you are weighing a management or employee buyout, read our MBO guide first. And whichever route you take, get tax advice on structure early: the choice between selling shares and selling assets can move your after-tax proceeds materially, as explained in share sale versus asset sale.
Where Caban fits
Caban Corporate Advisors is a principal-led firm. We take mid-market sell-side mandates from R4.5m or US$250k, run a confidential, targeted process, and draw on a register of investors and acquirers across South Africa and the wider region. We do not take on every mandate: capacity is limited, and we would rather tell you early if your business is better served by a broker or a direct sale. If you would like a straight view, send us a few lines.
About this article. Descriptions of broker and adviser models reflect common market practice and Caban’s own experience; they are not a survey. No fee percentages are quoted because we could not verify South African benchmarks.
Questions, answered
What is the difference between a business broker and an M&A adviser?
A business broker typically markets smaller, owner-run businesses to a wide pool of buyers and is usually paid a commission on sale. An M&A adviser typically runs a confidential, targeted process for a larger business, covering valuation, buyer selection, negotiation and deal structure, and is usually paid a retainer plus a success fee. Many firms blur the line, so judge the service and the fee terms rather than the title.
How much does it cost to sell a business in South Africa through an adviser?
It depends on the firm, the size of the deal and the scope of work, so beware of any figure quoted without those. The usual elements are a retainer, a success fee on completion, a minimum fee, treatment of deferred consideration, a tail period and expenses. Insist on all of these in writing before you sign, and ask what the total would be on a realistic sale price.
What is a success fee?
A success fee is paid only if the business sells, normally as a percentage of the transaction value. Ask what it is calculated on (enterprise value or equity price), whether debt repaid at closing counts, and when the fee on deferred payments or earn-outs falls due.
What is a tail period in a sell-side mandate?
A tail is a period after the mandate ends during which the adviser is still entitled to a fee if you sell to a buyer they introduced. It should apply only to buyers the adviser actually approached, and you should be entitled to see that list.
Is a business broker good enough to sell my company?
For a smaller business with many potential local buyers, a competent broker can be a good fit. For a mid-market business where the right buyer is one of a handful, where confidentiality matters or where the deal structure is complex, a targeted M&A process is usually the safer route.
What is the minimum size business Caban will sell?
Our M&A mandates start at R4.5m or US$250k of transaction value. Below that, a broker or a direct sale to a known buyer is usually more economical, and we will tell you so.