Experiences with exclusive buy search brokers?

February 14, 2024

by a searcher from Queen's University in Boise, ID, USA

I'm a self funded searcher. Anyone else with experience with using exclusive buy search brokers? I am not aware of this clause where the broker would claim a 4%-6% commission on ALL deals coming my way even if they weren't sourced by the buyer broker and came from other seller brokers I've contacted. I understand that they should get commission on their active search results. Any concerns from others? Seems like I would be at a disadvantage as a prospective buyer if seller broker has to potentially split commission. Thanks guys!

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Reply by a professional
from University of Toronto in Toronto, ON, Canada

^redacted‌, I agree with ^redacted‌ above. You get what you pay for with professional advisors. Since sell-side advisors seldom if ever split fees with buy-side advisors, the buy-side client is responsible for remuneration of the buy-side advisor. Good quality buy-side advisors will require a retainer to cover the value of their time in a search plus a "successful deal" fee; only poor quality buy-side advisors who have no work and no ability to distinguish themselves in the market will work 'on spec' with only a success-based fee. Depending on circumstances, the retainer may be set off against the fee payable for a successful transaction, in which case it effectively becomes a non-refundable draw against the deal fee. The retainer may also be capped but the easier way to deal with that issue is to provide for a short termination notice period on the advisory contract so the client can terminate the engagement without incurring excessive search fees; however, this normally leads to a 'hold-over period' fee. If the buy-side advisor is going to provide other services such as due diligence, deal structuring advice, etc., then those additional services should be paid for on a fee basis as they occur. [Thanks for including me here ^redacted‌.]

Reply by an intermediary
from Southern Methodist University in Fort Lauderdale, FL, USA

I'll give you a perspective from an advisor/broker. I recently took on a searcher client to see if it's something that we'd consider doing more of. First off, I probably won't. Massive investment of time, looking for and sifting through dozens and dozens of deals. In regards to sharing fees, many brokers won't share, or will only pay referral. So, it falls on the buyer to pay a fee in many cases, although I discounted my fee if my buyer sourced the deal. Benefit to them is we're able to find and evaluate many more deals with my team and resources than he would on his own. But again, even at a Lehman Scale fee structure, we're spending way too much time compared to sell-side engagements. Unless we find a way to tighten up the process, I likely won't seek more searchfunder type engagements. Too small. too much time required.

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