Broker Relationships and Agreements

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by a searcher from Prairie View A&M University - College of Business
in Dallas, TX, USA

7yrs ago

Broker Relationships and Agreements

Hi SearchFunder community, I am currently searching for acquisition opportunities and have begun to take meetings with brokers to establish relationships and put the word out. I have been asked to sign a Buyer Broker Agreement stating that I would be responsible for paying the broker in the event of an acquisition for a listing they brought to me. Is this standard for buy side brokers? What are some best practices for dealing with brokers? Thank you!

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reply by a searcher 7yrs ago
from Gordon Institute of Business Science, University of Pretoria in Dubai - United Arab Emirates

Not sure about the US, but if target sourcing is more challenging due to lack of information about businesses, buy-side brokers could assist with building the opportunity pipeline as they source from their respective networks.
Given that brokers are incentivized by the commission of the transaction, it is clear that the broker wants the deal to go ahead. In my opinion, it is the searcher's responsibility to vet these opportunities and understand that they need to go through diligence.
The risk of engaging with an advisor on the other hand is that you need to pay the advisor regardless of the outcome of your transaction.
I agree that commissions are not great, but if it shortens your search, you save time and money and provide a better return to both you and your investors if you plan your search well.

reply by a searcher 7yrs ago
from IESE Business School in Valencia, España

As an average, broker's commission should be between 2-3%. Usually it shoudl be paid 50% each part, however it also depends on your negotiation process and the need that the owner has to sell in order to get more favourable conditions.
And as Marinus said, it is also important to understand your timing and the cost of this time for you.