How do you build rapport with brokers?

December 06, 2024

by a searcher from University of Pennsylvania - The Wharton School in San Francisco Bay Area, CA, USA

Brokers seem to avoid searchers more and more these days, and honestly, it’s probably for good reason. But I still believe searchers can be great buyers in the right situations.

So, how do you build strong relationships with brokers? What are some strategies that really work?

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Reply by an intermediary
from University of Arizona in Denver, CO, USA

A few tips: 1. Come to the party prepared. 2. Don’t think because you have investors lined up that you are more important than any other buyer. 3. If you receive a CIM communicate back to the broker why it’s not for you. Less than 5% of all inquirers/buyers make the time to reply. Common courtesy is still important (and courteous). And, you may find that your interpretation was incorrect. 4. Since most Searchers have never owned a business or even managed people, don’t get hung up on little issues. What’s a little issue? Bring it to a couple of real business owners and ask if this is something that you should worry about. 5. Before you speak to a broker make the time to learn about their experience. Most successful brokers have more real life experience owning and operating a business than you have. Get to know them - it’s a 2-way street. 6. We do not care about your investors whatsoever. We worry about them because we have to sell them as well which is painful and while you sort out their availability for a call you will be left behind. 7. Include the investor on a call with the broker as soon as possible if you are interested in the business. Don’t expect us to wait for them. 8. If your investor has never owned and operated a business but they came from Investment Banking or other corporate position then get a new investor. They know NOTHING about how the real world works. 9. Focus on business operations and how the business works rather than the financials. If you like the business and can envision yourself at the helm then look at the financials. You’ll have plenty of time to review them and submit a suitable offer. 10. Don’t think what you learned in B School means as much as you’ve been led to believe. It’s mostly bullshit. If you want to be a finance guru, stay in Finance. If you want to be a business owner then put the big girl pants on and be ready to make things happen. It’s an interesting thing, if you operate the business with the customer in mind, take care of your staff, and focus on incremental performance improvements the numbers will follow if the business has a firm foundation.

As an aside, what I’ve observed over the past 6 years is that less than 10% of all of the Searchers in a room will ever buy a business. If you are not prepared to lead, work 70 hours a week, show your vulnerabilities, and be bold enough to make decisive decisions with only your gut then go get these skills. Investors’ money should not be burning a hole in your pocket. There will be great businesses available 3, 5, and 10 years from now.

If you have any doubts when you look in the mirror (we all do) then get off this train and buy a smaller business without an investor. They all seem to be nice and pleasant now but they are really nothing more than a bank. The only difference is that the banker is dialed in because if the loan goes bad they may lose their job. Very scary for a banker because well, you know, they rarely have the confidence to bet on themselves and join the business owner community.

Have questions, or does anything I’ve said resonate with you? Unlike many other brokers I’ll gladly make the time to speak with you.

Reply by an intermediary
from University of Missouri in Kansas City, MO, USA

Unfortunately, a few search fund buyers give all search fund buyers a bad rap. I've had search fund buyers submit bids for companies that in no earthly way were ever going to be qualified to run that company. An example: when selling a heavy equipment road construction company, a search fund buyer who had never lifted a shovel much less run a piece of heavy equipment and who had to ask me what a performance bond is submitted a bid, and they are not even remotely qualified to own and run a company like that. In other cases, we've had search fund buyers look at and even bid on nearly a dozen of our deal listings across wildly different industries or types of businesses. That person has zero credibility with a broker. They just look desperate. Lastly, if a search fund buyer has absolutely no idea where they will get the equity and debt to do a deal, there's no credibility and no broker is going to risk locking in an LOI and exclusivity period with absolutely no assurance that the buyer can get the funds together and close. I had one search fund buyer bid on a deal and tell me he had 6 or 7 investors lined up and casually mentioned that his father-in-law had just sold a company for $16M thus deliberately creating the inference that his father-in-law was going to invest. His father-in-law did not commit. He also failed to mention that he only had $50K to invest as equity on a $10 million deal and he planned to get it back out of the deal once it closed. That scenario had zero respect from the seller who was being expected to roll over 20% equity and carry back a $5M seller note. Finally, it is mind boggling to see how many search fund buyers invest absolutely no time whatsoever into researching a market or industry or type of business and it is painfully apparent in the questions they either ask or fail to ask. Buying a business is a lot of work! There are no short cuts. Honesty and integrity are essential.

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