The Difference Between Main Street and M&A

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RELEASE DATE: May 16, 2024

SHOW NOTES:

Boss Talk: Selling Businesses with Jim Parker and Carey Sobel | EP 7: The Difference Between Main Street and M&A

In this episode of Boss Talk, Jim Parker and Carey Sobel explore the distinctions between Main Street and M&A (Mergers & Acquisitions) business transactions, focusing on their perceived differences and how these categories impact the sale process. They discuss the significance of the buyer type, the business size, and the transaction's complexity in determining whether a deal is considered Main Street or M&A. The conversation includes practical insights into valuation methods, the role of brokers, due diligence processes, and post-closing integration, providing a comprehensive overview of selling businesses across different scales and buyer intentions.

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00:00 Welcome to Boss Talk: Understanding Main Street vs M&A

00:44 Defining Main Street and M&A in Business Sales

01:35 Perspectives on the Main Street and M&A Threshold

04:11 The Role of the Broker in Different Types of Deals

04:43 Complexities and Characteristics of M&A Transactions

05:49 The Buyer's Profile: Individual vs Institutional

11:53 Valuation Methods: Discretionary Earnings vs Adjusted EBITDA

23:10 What's Included in Main Street vs M&A Deals

25:43 Financing and Deal Structures in Business Sales

27:09 Exploring Roll Over Equity in Business Sales

27:51 The Mutual Benefits of Roll Over Equity

29:37 Diving Into Private Equity Groups

31:59 The Strategy of Business Roll Ups

34:03 Understanding Business Multipliers and Growth

35:30 Navigating Main Street vs. M&A Transactions

47:25 The Challenges of Post-Closing Integration

 

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Navigating the Nuances: Understanding Main Street and M&A Business Sales

In the ever-evolving world of business sales, clarity on the diverse marketplaces such as Main Street and Mergers & Acquisitions (M&A) can make a world of difference. Today, we dive into an insightful discussion from an episode of Boss Talk with Jim Parker and Carey Sobel, seasoned business brokers, partners, and experts in selling businesses. Their conversation sheds light on the key differences between Main Street and M&A sales, offering a practical guide for both sellers and buyers in these distinct markets.

Main Street vs. M&A: A Business Seller's Perspective

Main Street business sales typically involve smaller, owner-operated businesses focusing on individual buyers. From Parker's perspective, selling a Main Street business often means the seller is transferring a job to the new owner, who will then operate the business themselves. This direct, personal involvement in business operations characterizes the Main Street deal.

On the other hand, M&A transactions cater to larger businesses, appealing to institutional buyers or private equity groups looking at the business from an investment standpoint. These buyers might not involve themselves in day-to-day operations, but instead place managers to oversee the business, highlighting a distinct buyer profile compared to Main Street transactions.

Jim Parker puts forward an interesting criterion for distinguishing between the two: a theoretical threshold marked at a $3 million sales price. Above this number, one might consider the business entering the realm of M&A, while anything below could be seen as Main Street. Yet, both speakers agree the differentiation isn't strictly about the numbers. Instead, it boils down to the nature of the buyer and the complexity of the business.

Broker Roles and Valuations in Business Sales

A distinguishing factor in Main Street and M&A businesses lies in the role of brokers and the valuation process. Carey Sobel elaborates on this, highlighting that while Main Street sales might involve simpler valuation metrics based on discretionary earnings, M&A transactions delve into more complex analyses like EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and require an in-depth understanding of the business’s potential growth and scalability.

Both types of sales involve nuanced approaches to presenting and closing deals. For instance, Main Street deals often have a set listing price, whereas M&A transactions may commence with an open bid, reflecting the broader range of potential outcomes and complexities involved in larger business sales.

The Buyer's Landscape: Individual Aspirations vs. Corporate Strategy

A compelling part of the discussion revolves around the contrasting motivations and backgrounds of Main Street and M&A buyers. Main Street buyers are often individuals seeking ownership as a lifestyle change or a step towards personal entrepreneurship. In contrast, M&A buyers, typically private equity firms or larger corporations, aim for strategic investments, looking to merge or acquire businesses that complement their existing portfolios for growth and scalability.

Jim and Carey's tales from the trenches illustrate how personal narratives and career transitions play into the buying process on Main Street, differing vastly from the strategic, finance-driven decisions in the M&A world.

Closing Thoughts: Understanding Your Business's Place

The episode wraps up by reinforcing the importance of understanding where a business fits within the spectrum of Main Street and M&A before going to market. This clarity benefits sellers by aligning with the right type of buyer and navigating the sale process more effectively, ultimately leading to successful transactions that meet both parties' expectations.

For sellers contemplating the future of their businesses, embracing the nuanced differences between Main Street and M&A sales can illuminate the path to aligning with the right buyers, ensuring a smooth and rewarding transition for both sides of the deal.

Boss Talk's deep dive into these distinct worlds provides invaluable insights, guiding business owners, buyers, and brokers through the intricacies of selling and buying businesses across the spectrum.

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