Sidestep the broker?

July 27, 2021

by a searcher in Austin, TX, USA

I looked at a business back in December that was publicly listed on a brokerage's website along with other aggregators. I signed an NDA 8 months ago and still haven't seen any CIM. I follow up every month or so and eventually spoke with the brokers boss. She said they were waiting on financials and that the owner was on the fence about selling. I still haven't seen any materials and the listing is still active. I follow up every few weeks but they're clearly fairly annoyed with me and I don't see them ever being cooperative in a potential sale of the business to myself.

A 2 minute search on google revealed the name of the business based only on the listing details. Normally I wouldn't pursue any deal that had this many red flags but the business is right in my wheelhouse and I think there's a lot of potential for some kind of deal between the seller and myself, just probably not one that the broker would like.

Anyone have any practical advice on how to pursue this directly with the owner if that's even possible?

Reply by an intermediary
from City University of New York (CUNY) System in Tinton Falls, NJ, USA

Twenty years ago I became an intermediary because, as many who know me have heard, I hated business brokers and was unsuccessful at finding a business to buy that I could feel comfortable with and trust the data provided. I've owned 4 business before Calder Associates and sold two of them to public companies and knew what was both expected and how I wanted my M&A advisor/IB/intermediary to treat my company and me. Most BB unfortunately, even still today, treat many opportunities as not only a numbers game but something that can be analyzed, prepared, and marketed in 3 days after a success fee/listing agreement is signed. I got into this business to change that.

Suffice it to say, the tidal wave of the unprepared/unsophisticated brokers is large. I do not believe it is smart to sidestep a broker IF they do the right job, communicate, and provide credible and analyzed data on a timely basis. If they can't provide immediately, they should explain why and give a date to expect the book and data. At Calder, we don't go to market until our analysis is done, market research is complete, and memorandum is not only complete, but certified by the sellers. We don't want to waste anyone's time, including ours.

Selling a business from the M&A advisor's perspective, if done correctly, is a very time consuming and difficult process. It was meant to be that way. We go the extra mile in not only preparing the business for sale, but preparing the seller, and even doing pre-diligence analytics to make potential investors more comfortable and confident that their money and time will be well spent. Anyone who has worked with Calder will attest to that.

I became Chairman of the IBBA years ago to change that poor dynamic of BB in the industry. Unfortunately, when you convert one to do things professionally, it looks like 5 others pop up who see easy money and could care less about the $250K it takes a PEG to get to the finish line.

Suggest you get to know the intermediary/M&A Advisor/BB very early on, determine the likelihood of successfully working with them, and if they are the ones who don't give a damn, lack info, and check out nothing, then I'd be inclined to go directly to the seller if you can't make adequate progress quickly. I remember how frustrated I was then and how frustrated I get now when we do our buy-side representation.

Reply by an intermediary
from ESSEC Business School in Ocala, FL, FL, USA

As brokers would never even sign a listing agreement without having first secured and reviewed all relevant financial information and, in most cases agreed to a listing price with the Seller. We would also never list it for sale before the CIM is done and actually signed off by the Seller. The fact that the Broker you are dealing with has lesser standards does not necessarily mean that you should pass on pursuing this further if you feel this is your perfect match. I am not sure about the Laws governing Business Brokers in your State but here in Florida, I would recommend that you have the Broker confirm in writing that he does have a signed listing agreement with the Seller. If you really want a shot at this business and if there is an established asking price, you could write up an offer at the full asking price, contingent upon reviewing all the necessary information during a Due Diligence period that you would determine in the offer. If there is an exclusive Listing Agreement in place between the Broker and the Seller, odds are (at least here in Florida) that the broker would be entitled to his full commission if the seller refuses a full price offer, so this may force him to move forward and share the information you need to evaluate the deal further. If you are successful in conducting due diligence you could than retract your offer based on the information received and make a new one more in line with the actual condition of the business. These are a lot of hoops to jump through with little chances of success and I would recommend you move on to trying to find a motivated seller and a more demanding Broker.

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