Encouraging my seller to get a broker - could this backfire on me?
November 20, 2023
by a searcher from University of San Francisco in Redwood City, CA, USA
Long story short we are 5 months into a deal and my seller has chosen to rely on non-M&A experienced friends and his financial adviser to tell him if my offer is good enough. Let's skip ALL the reasons why that's an awful idea and go straight to the pros/cons of me recommending (and maybe even paying for) a broker or experienced sell-side adviser to guide him to the finish line with sound and experienced M&A advice.
My biggest fear is that the broker or adviser I recommend he use comes in and either:
a) introduces more buyer competition
b) puts the deal on the open market
c) advises the seller to work on the business for x number of years before selling.
...ALL of which could kill my deal.
How can I be assured that the broker/adviser will come in and work toward OUR deal? Anybody else run into a seller like this? what did you do to overcome? Thanks for any help/advice you can provide.
from University of San Francisco in Redwood City, CA, USA
Some tallied results from the advice in the comments:
Vast majority of comments mention what will usually solve the issue of unrealistic seller expectations is just a good, experienced M&A attorney on the seller's side who does deals of this size on a regular basis. While they won't be an expert on valuation, they will be able to inject some reality to the seller in that his old school, 400k SDE service business is, in fact, NOT worth 10 million dollars :)
Second most comments suggested getting an independent valuation done on the business. But those suggesting this were quick to mention it will only really have an intended result if the seller is bought in on deferring to a valuation professional prior to engaging one.
Third most comments recommended what I'd never heard of before: mutually retaining a transactional advisor to guide both sides through the sale process while remaining impartial to either party. (in addition of course to each of us also having our own attorneys). I like this idea, although I don't think we're there yet. I still believe a good quality attorney will be able to give him the trained eye that he lacks.
Second to last were the brokers who ~themselves~ advised strongly against bringing in one of their own--which was refreshing to see. I totally get that there are incredible, trustworthy, poster child brokers out there that would probably actually step in and help this thing close, but since I don't know any of those, my risk is exponentially increased when searching for one in such a short amount of time. Safer to avoid altogether.
Bringing up the rear were the shameless brokers making their pitch to be introduced to the seller :). In all seriousness, I come from a background in sales and we all know how many shots you make if you never shoot the ball, right? Keep shooting, you just won't be making that shot with me and my seller lol.
Thanks for all the time people have offered and given over the past few days, especially during the holiday week. I've spent a few hours on the phone collectively and am a much more knowledgeable searcher because of it.
Lastly, I am always taking recommendations for quality, lower/small business M&A attorneys **based in California only**. I believe I have my attorney selected, but my seller could use some additional recommendations for those that also represent sellers. Hoping for some professionals who have a deal-maker approach more than a 'pick things apart' approach. Thanks again!
in Dacula, GA 30019, USA
It gives both credibility, and tends to allow the broker to have an honest conversation without the seller getting offended.
Challenge is, any reputable M&A person will present all viable options out of professional responsibility. Now, this isn’t necessarily bad because, while it’s possible your seller COULD make more in an exit by waiting and fixing some things, it is equally possible that the market shifts further (reducing value) or that the seller won’t actually want/be able to do the work it will take to bump valuation/terms in a meaningful way.
I always tell M&A clients “I can either get you a fast exit, or the highest possible multiple…I can’t generally do both outside of unicorn situations.
I run a boutique M&A firm catering to lower middle market ($5-$70M exits), and have my own portfolio of businesses.
I’ve built a reputation as Switzerland…loyal to whomever pays me.
The key to getting these dome is nailing the real motivation of the seller.
This past year has been great for my firm BUT I’ve seen a disproportionately high number of deals with at least some seller financing, and multiples are down in all but a few verticals.
Most brokers hate any seller finance/creativity which is why 90% of businesses never sell.
I’m choosy and very candid so my sale rate is 100% (knock on wood).
Setting the table with all the realistic possibilities, and what each mean for the seller is key.