Be prepared to receive inquiries from buyer brokers and intermediaries.
Objective
Utilize buyer broker and intermediary connections and expertise, without incurring expense or derailing your deal.
Tasks
Verify a broker’s or intermediaries’ role and authority. Understand their motivations. Be prepared to provide them with information and answer their questions. Deflect attempts to pay them a commission unless you execute an agreement with them to do so.
Best Practices
At this stage in the process, you are advertising your business for sale. You may have reached out to buyer prospects directly. You might get calls from buyer brokers or intermediaries. Who are they, what do they want, and how do you engage with them?
A Buyer Broker is typically retained by a buyer to surface and qualify opportunities, but not always. Be careful here, because some brokers may contact you purporting to represent one or more buyers, but they have no exclusive mandate and hope to convince you to list your business with them. Happens all the time. Some brokers, especially unscrupulous ones, troll the BLS to identify business owners who are selling their own businesses – who have no representation, then try to get them under contract using all kinds of ploys and promises. Here’s what you need to know:
Most buyers do NOT retain brokers on an exclusive basis. They basically tell the broker community what they are looking for. If a broker brings them an opportunity that’s a match with their criteria — and they eventually purchase the business — they promise to pay the broker a fee.
Some buyers even publish a “Mandate List” that profiles the types of businesses they are looking to acquire, including industry, market sector, geographical location, revenue and earnings minimums, and the price range for acquisitions. MANY brokers get these lists. I get them regularly.
Some brokers will use this non-exclusive mandate list as an excuse to reach out to you. They may tell you that they are working with a buyer who might be interested in your business. This is technically not untruthful, but it’s a tad disingenuous. They may or may not have a relationship with the buyer or have any sway over their time and attention. Your task is to quickly determine the broker’s precise role and authority.
To ferret this out, simply ask the broker, “Do you have an exclusive representation agreement with the buyer?” If they say they do (and some might), ask them for a copy of the agreement. Call the buyer or his assistant to verify that they have retained the broker. Then go through the same buyer qualification process outlined in Step 8, BEFORE you disclose any information about your business to the broker or to the broker’s client.
If the broker does not have an exclusive mandate and comes clean with that tidbit without you having to drag it out of them, they may still be helpful to you. But FIRST, you need to determine whether the buyer has already contacted you! Ask the broker for the name of the buyer and check to see if they have already contacted you through the BLS, or if they are already on your prospect list (Step 7). If the buyer is already known to you, communicate that immediately to the broker.
The broker may ask for assurances that you won’t circumvent him or her if the buyer is new to you. It’s up to you to agree or disagree, depending upon how you feel about the way the broker contacted you and their professionalism, but in either case, make no promises about how you will or won’t engage with the buyer after the broker makes the introduction. It’s up to the broker to figure out how he or she will get paid by the buyer for making the introduction, or to reach an agreement with you to pay a fee if his or her contact buys your business. Some buyer brokers just want a referral fee from the buyer and play no role beyond making the introduction.
More often than not, the buyer that the broker introduces you too (after you qualify the buyer), will choose not to pursue your opportunity. The broker may then ask if he or she can try to find another buyer for you. If you like the broker, you can always agree to pay him or her a commission when they bring you a qualified buyer and it results in a successful closing. That’s what brokers call an “open listing”. Most seasoned brokers will not take an open listing, but some just getting started in the profession will take an open listing. If you indicate a willingness to work with them, they may press you to sign an exclusive listing contract.
If you decide to work with one or more brokers on an open listing basis, there is a sample agreement in the back of this book.
Back to brokers and intermediaries who DO have an exclusive mandate to represent the buyer. They may not be a licensed business broker, but an attorney, accountant, or other type of business advisor. Again, after you verify that they have an exclusive right to represent the buyer, clarify their role and authority. Treat them just as if they are the buyer. Their job is to qualify YOU and your business, while you are qualifying them.
We’ll get into buyer inspections, due diligence and transaction management later, but just remember this for now: buyer brokers and intermediaries will be friendly, but they are not your friends. Even if a buyer’s broker is a designated “transaction broker” and not a “single agent broker,” his or her loyalty will be to whomever is paying him, which in this case is the buyer and not you the seller.
Tools and Tips
After you have qualified the role and authority of a buyer’s broker or intermediary, it’s smart to do some research on them. Check their profile on LinkedIn. If they are an attorney, check their rating on Avvo or other sites that rate lawyers. There are also sites that rate brokers, accountants, and business advisors. Do some homework. Try to ascertain whether the intermediary has a reputation for being a deal maker or deal breaker. Brokers and intermediaries retained by buyers may have the ability to make or break the sale of your business. It behooves you to get them on your side.
A note on whether you should retain a broker who reaches out to you, after initiating the sale of your business without having a broker: Most business brokers are reputable and more than earn their fee. Just make sure they are duly licensed. A good broker can get you a higher price than you would have gotten on your own.
If you have been advertising for-sale-by-owner on the BLS and reaching out to buyer targets with no progress, you should consider retaining a broker. If you are having a good response from your for-sale-by-owner efforts, but deals are falling apart during inspection or due diligence, a good broker can help get your selling effort on track to a successful closing. Sometimes, having an objective but knowledgeable and professional intermediary can make all the difference in getting the deal done. In these cases, most brokers will take a reduced fee or even fixed fee to help you get to the finish line.
Summary
Buyer brokers and intermediaries are often part of the equation when selling a business. Some may have the exclusive mandate to represent a buyer, but many do not and will try to insert themselves into the deal to earn a commission from the buy-side. Some may use the “buyer broker card” to try and get you to list your business with them so they can get a commission from you when the business sells. Be careful, be smart, always know who you are dealing with and what their role and authority is. If they do represent the buyer, treat them exactly as if they are the buyer. Qualify them, cooperate with them, and negotiate with them accordingly.
Example
- Broker Profiles/Reviews
- Sample Broker Agreement