Types and Sizes of Businesses in California, M and A and Business Brokerage
As business people it is natural to want to organize and categorize things. The same is true for the Business Brokerage / Merger and Acquisition profession. Please note, that these are very general guidelines and may not apply is all cases. Operating a business in Southern California is expensive and a business needs to generate more revenue just to survive here than say in the midwest.
Here are the general types of businesses
Main street business: SDE around $100,000, owner runs most of the facets of the business. These business usually sell for one to four times SDE.
Upper Main Street businesses: SDE between $100,000 to $500,000. Owner normally runs the business with a support staff. Many times these are "family" businesses or partnerships. These types of businesses usually sell for 3 to 7 times SDE.
Middle Market Businesses: SDE between $250,000 up to millions. Owner may run the business or may own it as an investment. These types of businesses have an organized management staff and may have multiple locations or operate in multiple states. These type of businesses may sell for 3 to 15 times SDE.
Specialty Businesses: Certain types of business have increased demand and therefore may command higher prices. Many times the property is integral to the operation of the business and is sold at the time the business is sold. One glance at the gas station for sale listings in California and you will see that these will fetch very high prices. Examples of specialty businesses include: gas stations, car washes, golf courses, hotels and some manufacturing. Coin laundries are often in demand since they can be quite profitable and are relatively easy to operate.
You may have noticed that the SDE numbers overlap for Upper Main Street and Middle Market businesses. There are often many attributes that are the same. In my opinion the biggest difference in a upper main street and a middle market transaction is how and to whom these businesses are marketed.
Business Broker Deal versus Merger and Acquisition Deal
Most business brokers handle both types of transactions. As I mentioned before, the biggest difference is an M and A / middle market transaction is how and to whom the business is marketed. Generally whether the transaction is "upper main street" or "middle market" has more to do with who buys your company and how complicated the transaction is, than how much revenue your company generates.
Business Brokers facilitate the sale of businesses from one owner to another owner. M and A professionals facilitate the sale of businesses from one company to another company and/or focuses on private equity groups and strategic buyers.
M and A versus Investment Bankers
I am often asked what the difference is between a M and A professionals and Investment Bankers. The main difference is that Investment Bankers raise capital and M and A professionals do not. Investment bankers are also licensed by the Securities and Exchange Commission, the SEC and business brokers are licensed by the California Department of Real Estate, the DRE. If you are interested in finding investors, leveraged finance, selling debt or raising capital through the sale of stock you will need the services of an Investment Banker not a M and A professional.
A Final Thought
Whether your business is middle market or main street, owners all want the same outcome. They want a competent, effective, and knowledgeable professional to expose their business to as many qualified and capable potential buyers as possible. They want their business to sell for the highest price possible and for the transaction to be managed professionally.
I work with owners of businesses of all sizes. To learn about the services that I provide
Go on to Business Valuations.
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