Broker Relationships and Agreements

May 16, 2019

by a searcher from Prairie View A&M University - College of Business in Dallas, TX, USA

Hi SearchFunder community, I am currently searching for acquisition opportunities and have begun to take meetings with brokers to establish relationships and put the word out. I have been asked to sign a Buyer Broker Agreement stating that I would be responsible for paying the broker in the event of an acquisition for a listing they brought to me. Is this standard for buy side brokers? What are some best practices for dealing with brokers? Thank you!

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Reply by a searcher
from University of California, Santa Barbara in Los Angeles, CA, USA

I see it a bit differently from Long. If you want to buy a sub $1mm EBITDA business, it's a very disjointed category and the BizBuySell's of the world don't cover it all. Further, many of these businesses are priced so its a first to the pin game to get the deal locked up so the frequency of check-ins and your ability to do them matters. If you can afford it, using a buy-side broker to help you search gives you time leverage. I view my time as way more expensive than money. I can always make more more money. I do agree with Long though that you won't find some amazing proprietary deal but valuations in that space should be cheap enough that with a sensible plan you can succeed.

Reply by a searcher
from University of Southern California in Los Angeles, CA, USA

Hi Kenna - a couple of things to share from my experience. 1.) If a broker is bringing a deal to market then he/she is being compensated by the seller. You should not be paying any fees for working with a sell-side broker###-###-#### Some brokers work with clients on a buy-side basis. If this is your arrangement, then you will be responsible for compensating the broker (usually a negotiated agreement, should be no more than 5%). Be wary of buy-side brokers and understand what you will be paying for.

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