Tips on proposing consulting services to a target?

June 27, 2023

by a searcher from Carleton College in Leesburg, VA, USA

I would like to propose a consulting arrangement with the owner of an acquisition target. Can I step around the broker to do it?

The situation:

I am a self-funded, self-taught, part-time searcher. I have been negotiating with a business that is a very good fit for me, but its earnings don't quite justify the price that the owners expect. I believe they could improve the earnings with a little help, but without help they are too ready for retirement to really try. They are content to just run on autopilot until the day when someone magically offers them all the cash they are dreaming of. In the meantime, the business will degenerate. I have discussed some of this scenario with them and was able to get them to ease their stipulations a bit, but not quite enough.

I want to propose that I do some part-time work to give them a boost. I would charge an hourly rate. If the work helps them find a better buyer, I would get fair compensation and experience in the meantime. I would also also gain a better understanding of the business to know whether it's worth pursuing further. Ideally, we would boost earnings enough to make everyone happy and follow through with a deal. Not so ideally, we would boost earnings so well that a more competitive buyer would step in. I don't want that but I could live with it.

Have any other searchers tried consulting arrangements like this? If not, what are the pitfalls I'm missing, other than opportunity cost with a different target?

If you do have experience with such an arrangement, are there any tips for how to proceed?

Most immediately: there is a broker. Do I step around the broker to propose the arrangement, or do I go directly through them? If I go through the broker, is the broker entitled to some sort of fee?

Reply by a searcher
from University of Maryland at College Park in Frederick, MD, USA

Great questions! Here's one way: If you have believable and trusted chops in growing businesses in this sector then I would explain their problem to them and pitch a plan to massively grow their gross income by using your "system" (not your time). I would ask for a fixed fee per month in exchange for implementing the system and 10-40% of the growth (depends on industry and EBITDA%) in gross income without limit - ownership to vest as earned. You become the locked in buyer because no one else will buy the owners stock with that agreement in place and your own stock in your hands. You become a part owner and can qualify for SBA funding if you want it and in the agreement you have first rights of refusal over any other buyer. Step around the broker since you are not buying anything. Your equity is from earnings. Put a time limit on the deal so that they must buy your stock back when you request it but no more than 4 years and set the price using a formula. As you work with them you will build trust and you can negotiate a purchase on terms.

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