When you reach out to business owners and figure out their needs your ability to negotiate and be flexible is greater than with a broker who already has something set in mind regarding the buyer ( You ).

There are pros/cons to both. I'd summarize by saying, speed to deal is better via a broker. Getting a business owner to the finish line is hard enough, when a broker has already done the front end work. I'm not opposed to the direct model and have attempted, but so far, the time/resources spent hasn't panned out for me on going direct.

If you find a great deal working with a broker, then using a broker is better. Or, if you find a great deal via a proprietary direct process, then that is better. The point being, you need to do both. When a deal is represented by a broker, ask him/her if the client has paid them a retainer. That speaks volumes as to the seller's seriousness and the broker's credibility.

Searchers should register their acquisition criteria with as many possible sources as possible and investment bankers/brokers are just one of the resources that should be used. Be happy to share the template at [redacted]

Brokers tend to provide more expensive deals. While taking a look at both types of deals, bear in mind that incentives change for the parties involved.

Both sources should be sought out - I have successfully acquired businesses using both channels and what I will say (my opinion) is that the market for small businesses is so inefficient that “alpha” can be unlocked in so many diverse ways that the idea that proprietary sourcing has higher investment returns per se seems like an oversimplification. There are thousands of listed opportunities that don’t sell and others that sit for years. To say that this is the work of a rational, efficient market (because the assets are always bad) is a neoclassical economics bedtime story. Here is an example from my personal experience. A commercial real estate asset (grocery store) had sat on the market for over a year.. 3 offers had all fallen through. I had an agreement to acquire at it 6.1mn in early[redacted]I was unable to raise the equity needed and had to back out. It sat another year and closed recently for $8mn! Listed or unlisted... doesn’t matter. There are incredible opportunities almost everywhere you look. Far more sellers than buyers of small businesses. Good luck!

From these comments would one accept the strategy to only look at broker deals that have a little age on them (i.e. have been unsold for 1 year or more)? I have seen this tip before and have experienced myself that new broker listings have the highest (unrealistic) valuation expectations and are less likely to close, despite consuming a lot of energy on early DD.

It's definitely a "both/and", the decision as to what proportion of time to spend on each will be based on your target sector and criteria, local market dynamics, local brokers, use of interns, etc.

I agree with the comments. Business owners are emotional about their businesses. They have worked hard and made it a success. therefor, they sometimes have unrealistic valuation expectations. When you are dealing with a deal that has a broker, the broker has already done the convincing talk about the valuation. So it becomes easier to negotiate a deal vs going directly with the business owners.

While it may be easier and faster to buy a listed business, per the comments above, for over 15 years I have specialized in finding and closing lower middle market non-listed deals for my clients and have found that the very best businesses for sale are on the "hidden" market, those not listed with a broker. Over 80% of the these businesses that sell are never listed. Why? They are scared to death of confidentiality issues and don't want to pay a 8-10% fee. And the ones that have been listed for over a year, usually have more than a price issue. Most business owners will never talk to the many, many letters/emails/phone calls from individuals (such as SearchFunders) for the very same reasons, as most are tire kickers and end up wasting their time. Most if not all of my clients have either been involved in business transactions or have "searched" for 6-8 months and realize the best way to buy a business is to be the only buyer in the deal with a truly motivated and realistic business owner. Reach out if you want to know more and talk to the many satisfied clients that I have.