Searchers, do your homework.

September 23, 2024

by an intermediary from Clemson University in Raleigh, NC, USA

This may come across as a bit of a rant, but as an M&A Advisor over the past year or so there has been a significant increase in unfunded sponsors. This in and of itself is fine, but there's one other thing I've noticed and it needs to stop.

That is prospective buyers were wanting to schedule initial calls with the sellers before reviewing the provided confidential information provided in the VDR. This resulted in seller fatigue for two reasons; 1. There were too many buyer/seller calls/meetings being scheduled and 2. to be blunt STUPID questions were being asked.

To mitigate this I started requiring buyers to have a call with me first to cover high level questions or to provide more detail or perspective on provided information. That helped, but...

I just ended a call with a buyer who asked "Why are the owners selling?" This is provided in EVERY SINGLE public listing. Whenever I hear a buyer ask questions that are provided in the public listing they are essentially dead to me. If they ask questions that are answered in the FAQ's or VDR I ask if they have taken the time to review all of the provided information (and of course they haven't).

Business brokers and M&A Advisors do not work for buyers. We represent the seller and spend dozens of hours per listing in collecting and presenting relevant information. Dozens mnore collecting and providing additional information. Unprepared buyers waste incredible amounts of the intermediaries time having the same conversation over and over and over again with buyers who are too lazy to review what has already been produced and provided.

Don't expect the broker to do your initial DD.

Do your homework.

Reply by a searcher
in Cincinnati, OH, USA

A broker is paid to "take it to market," which generally results in maximizing visibility. Any process that is seeking eye-balls is going to have some percentage of tire kickers. As a former seller, a broker's fee is earned for having a process to screen for legitimacy, so seller's can continue to focus on running their businesses. If unqualified buyers reach the seller, the broker needs to refine their process for the modern market.

From a buyers perspective (as it's already been said many times by others), most brokers are unknowledgeable, provide inaccurate or limited data, waste buyers, bankers, and advisors time, and create broken deal costs from not doing a better job on the front end. Thus, buyers are forced to "trust, but verify" anything coming from a broker or seller, whether written or verbal.

While the title is, Searchers, do your homework, the reverse is also true. Brokers, (need to) do your homework.

Unfortunately, the reality is that there is friction on both sides.

Reply by a searcher
from Mercer University in Atlanta, GA, USA

Very fair expectation, generally. As Jeff mentioned above, though, my experience had shown that it's also fair go confirm information presented in CIMs. The answer provided to the question " why is the owners selling", in particular may be deeper or slightly different when posed directly to the seller. Ive found that the answer is rarely so straight forward as "retirement". Reality is that in order to get at the truer answer to most of the more pertinent questions, you cant ask directly or just a single time. You have to ask in different ways, over time and better yet, observe / analyze other data points to see the clearest picture. So, overall I still agree with the sentiments of this post. As buyers we can't approch the diligence process lazily. On the other hand, there is a learning curve and a it may take a new buyer time to figure out how to approach each step intentionally, strategically and most efficiently.

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