External Sourcing Firms

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October 17, 2022

by a searcher from University of Pennsylvania - The Wharton School in New York, NY, USA

What are this group's consensus on using external sourcing firms? Essentially a buyer's broker dedicated to just your investment thesis? How are such agreements usually structured (typically a retainer with some sort of finder's fee?)

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commentor profile
Reply by a searcher
from The University of Texas at Austin in Houston, TX, USA
In general, any time you are conducting a 'proprietary search' you need to be prepared for long deal cycles and deal coaching. You don't have the benefit of having a sellside broker work alongside the seller for several months, refining their financials and valuation expectations. Additionally, you may have to somewhat convince the owner that now's a good time to sell their businesses rather than having them come to that conclusion independent of your existence. Dead deal costs can escalate.

I've used a buyside brokers and has mixed results. In general, most are 'dialing for dollars', which you could probably train an intern to do. If you decide to use one, I think using one with a specific geographic focus or industry niche would help improve results.
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Reply by an member
from Universidad Nacional de Educación a Distancia in 11100 San Fernando, Cádiz, España
Yes, buying mandates are typically structured with a retainer plus closing fee (generally calculated on the EV of the company), with closing fee stepping down the bigger the deal. I'm sure you can find a lot of brokers willing to engage in that agreement. I recommend you to find someone with experience in the niche you are searching for, and negotiate the agreement so that it makes sense for both
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