Is hiring a buy side advisor worth it?
July 05, 2023
by a searcher from University of Utah in Salt Lake City, UT, USA
Been searching full time for a month now I have contacted about 12 business brokers in Utah that have listings. I found 2-3 listings of interest: one of them I had an owner call and am no longer interested in the business due to customer concentration, another one went under contract, another one the industry seems too volatile for me.
I am eager to buy a business and I am wondering if hiring a buy side advisor/business broker is worth it or if I should just keep on scanning brokers websites and hit a deal once it becomes available.
1- Has anyone used a buy side advisor to help them buy a business? How did it go? How much did it cost fees etc?
2-Does anyone know of any good buy side advisors in Utah?
in Washington, D.C., DC, USA
^redacted Good question. I'd say it depends on what type of business you are acquiring and if you have the operating experience to get into the details and evaluate the deal and handle the entire MnA Transaction.
In the software / SaaS world, the first thing you want to consider is: If it's a High-touch SaaS or Low-Touch SaaS, what is the level of Business Automation and what is the technical debt.
The role of a buy-side advisor is to dig into all these details and get clarity for you (and on your behalf) and understand what you are getting into and evaluate the business deal beyond the financial numbers.
If you buy a Company just because it's at a low multiple but if that is high-touch, requires heavy manpower, and is having huge tech debt, that's going to take a lot of effort, attention, and investment from your side. Not that these deals are not worth it, it depends on your risk appetite and how long you want to hold the asset and what is your north-star metric. etc.
Business Advisors would generally charge you anywhere from 3-10% of the deal cost. Now it also depends on what type of value add they are offering like Tech DD, Financial DD, etc. You can negotiate this cost.
Now coming to brokers, A good broker will help you pre-evaluate the deal, have all the information required, and would work with you to get through the tedious MnA transaction. If they are adding value, it's worth spending that time and $$$ so that you can focus on say fund-raising or working on the post-acquisition integration plan and so on.
I've worked with a few brokers to find deals. Some of them are just doing the traditional approach of sharing deals "Oh hey, here is the deal - wanna buy?" Some of them don't even have deal rooms or data or information required for you to even sign the LOI.
A good broker would spend time and energy to get the details, prepare the deal room, and are basically your business consultants who can answer any primary questions you may have to make the transaction successful.
I meet ^redacted - thru this platform. I was evaluating a SaaS deal, and he was very helpful. Not sure if they work in Utah or in your target business.
from The University of Chicago in Chicago, IL, USA
I engaged a buyside advisor to help me search as am still full time W2. My calculus was that the economics made more sense to keep my job and leverage someone else to help with the proprietary search. I had a tightly defined criteria which still yielded potential targets in the thousands due to being in a major metro area. Despite paying a retainer for the better part of the year, I do not own a business. It is not guaranteed that hiring a buyside advisor will net you a quality business. This is not a knock on the advisor I hired - they are great and did what they were paid to do. Instead, it taught me that proprietary is really hard and any search has a large component of luck and fortunate timing to it. I spoke with a fair amount of potential targets, but nothing ended up being actionable.
One under appreciated benefit of using an advisor is it legitimizes you to certain sellers and their reps in a way that reaching out on your own behalf does not. It signals that you have legitimized yourself to the advisor or they would not have taken on the engagement so therefore the sellers and their bankers should also take you seriously.