Who's your competition for deals? I found out when a broker leaked his list

December 22, 2023

by a searcher from University of Pennsylvania - The Wharton School in New York, NY, USA

A broker listed a b2b services company with $500k SDE. Although we declined after seeing the CIM, the broker leaked email addresses for all 161 bidders for this deal. I took the liberty to dig into the other 160 bidders to learn about the competition.

Here's what I found.

Most of your competitors are just random people

The most surprising finding was that 40% of bidders had zero chance of winning the deal. They were tire-kickers, perhaps they heard about search funds from a business school friend, and they poked around a few broker websites.

Competing financial buyers are concentrated in the US cities

Most financial buyers are located in major US cities. We've all heard that competition for deals is much lower outside the major markets, and this map visualizes that argument.

44% of financial buyers are searchers

I'm interested to see how this number moved in recent years as ETA becomes trendier and more middle market PE groups are looking at the same small businesses now too.

Strategic buyers are more geographically spread out

While LA & SF still have concentrations of strategics, most other strategics are more spread out than financial buyers. Even NYC has way less strategics.

You're also competing against the SMB Twitter guys

I was surprised to see one of the big SMB Twitter guys on the list too. Yes, you're competing against them as well. Tread carefully!

Finding data like this is tedious. If you'd like to skip the tedium and get more analysis like this delivered to your inbox, comment below and I'll add you to my email list!

Reply by an intermediary
from Boise State University in 800 W Main St, Boise, ID 83702, USA

While its admirable that you did this analysis, you may want to consider that the results may be similar to analyzing a mud puddle and then assuming to understand the contents of the ocean. This broker's marketing attempt has no bearing on other brokers and their lists and how they might search for buyer prospects. In my experience, when taking a business to market, professional intermediaries determine the criteria that a buyer needs to have to buy a particular business. Then the broker selects prospects who might fit and contacts them. Or even better, the broker anonymously advertises the listing and receives inquiries from prospective buyers (who then are added to the list). For small deals, the "spray and pray" method is easy to do even though the results may be sketchy. It's like using a shotgun when a rifle is needed. However, the broker is likely hoping that someone on the list is interested or has a friend that will be. The SDE makes it too small for PEG's and so yes, most of the people on the list are likely random financial buyers dreaming of buying the "perfect" business which means they tend to be tire kickers.

Reply by an intermediary
from The Johns Hopkins University in Gainesville, FL, USA

My buyer list corroborates many of your findings. The absolute WORST part of being a broker is dealing with the tire kickers. I even had one who represented that he was affiliated with a well-known investor, which was a blatant lie,
Also, I think it's really important that a seller understand how a potential buyer will "treat" his company. PE companies are managed in a way that is fundamentally different than strategic and other buyers, which may or may not meet the needs and goals of the seller.

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