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 Salt Lake City, UT, USA

Jeff, I appreciate your perspective. Thank you! However, as an unfunded sponsor who has completed three transactions allow me to provide a perspective you may not have considered. Searchers read through dozens or even hundreds of listings every week. When you use extremely generic reasons for selling, I'm going to want to drill down on that. The only reason that I won't want to hear elaborated would be retirement if the seller is clearly 60+. Just saying "other business interests" isn't a good answer and I need to know why a company that's being marketed as "mostly absentee" and "requires minimal capex" has an owner who wants to dump it. If it's such a cash cow why is he selling?

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.

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