All brokers are not created equal

February 10, 2020

by a searcher from University of Chicago in 20 2nd St, Jersey City, NJ 07302, USA

I've been wrestling if I should post this anonymously or even to post at all, since this is a small community. However, I feel that it's important that other searchers watch out for certain brokers who may be less than professional. So recently I've had some pretty disappointing experiences with brokers. Now I'm sure there are plenty of professional brokers on this website and elsewhere so this is not directed towards you. My first poor experience resulted in me losing an LOI because the broker didn't understand the Search Fund model even though I explicitly told her that I would need to raise from LPs. If you are a broker, please don't be lazy and make sure you understand who your buyer is. The second incident happened with a broker who was asking for a quick turn around on an IOI. Not willing to provide guidance or financials but only a CIM based on cash accounting, I submitted a conservative bid. This broker literally emailed me and told me my offer "sucked." While it doesn't bother me, it clearly bothered him enough to have a long email exchange explaining why my bid sucked. Second advice to brokers, if you want good pricing don't be lazy and give us buyers full financials . Otherwise, please expect conservative bids or high bids and expect to be retraded.

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

Before you read my answer, my quick background. 30+ years as M&A Intermediary, $1 to $100 M value, taught at Kellogg for 15+ years, President/Chair of AM&AA for 12 years (a trde association of 1000+ deal makers), IBBA board member, Chair of M&A committee of FEI's private companies (FEI is an association of C-level finance executives with 10,000+ members), past-chaie of M&A Source Education..

Your statment is ...All Brokers are not equal. I agree. But, this is not different than any other profession like accounting, lawyers, bankers, a teacher, a doctor, etc. Nor are all MBAs equal. I even question the B-school education (ETA) that makes an enterpreneur think they are fully prepared whenthey are not. Most professors lack hands-on experience of small business "acquisition". Most professors know more about large companies than the small private businesses. I have personal experience of top B-school graduates that ranges from very good to very bad. However, I have also learned that the MBAs from good schools are capable of learning at a ultra-fast speed not only to acquire but also to manage and grow. And hence, in no time, they can out-smart average business brokers. Keep in mind, MBAs are empowered more than the average broker. To make things worse in the broker world, all businesses are different even if they are doing the same thing. Even accrual based statements and audited statements (which almost never exists in a small business) have flaws.

How to increase your success? One suggestion is to check a) if the broker has gone through certification like CBI, M&AMI, CM&AA, etc. offered by trade associations (certification with experience is a big plus), or b) broker has deep experience. A good broker is likely to have finance background, operations experience, or engineering degree.

Reply by a professional
from University of Minnesota in Minneapolis, MN, USA

My old boss had an expression to describe how a broker approaches a transaction as opposed to an attorney (my boss and I both being attorneys): "The broker is concerned with the wedding; the lawyer is concerned with the marriage." While not always true, of course, my experience with business brokers is that as the deal size shrinks, the more likely it is for a broker to have one objective - closing the deal and getting paid. Custom around here is for brokers to get paid full commission at closing, and they usually try to ramrod additional waiver documents through at Closing to try to separate themselves from any liability in the transaction. It can be frustrating, especially when there oftentimes seems to be little value provided on any due diligence steps in the process.

Of course, I'm sure there are plenty of brokers out there who have a litany of horror stories about lawyers killing deals or ripping off clients so I can't paint with too broad of a brush.

I guess the moral of the story with brokers (as with any transaction adviser) is to do your homework, check references, and be quick to fire if you're not getting the results you want.

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