How to Work with Business Brokers

In our February 2023 Private Market Insights conversation, Sarah Goodman – President and Co-Founder at Eminence M&A Strategies – revealed some of the most successful strategies buyers can employ when starting to work with business brokers in the SMB space.

For 20 years, Sarah has worked with public and private companies, in a range of leadership capacities. Following an accomplished career contracting with many Fortune 100 brands, Sarah got started in M&A as she launched her own successful acquisition project. She recently launched Eminence M&A Strategies to help business owners navigate their way through the M&A transaction and achieve a favorable outcome that meets their objectives. 

Sarah’s experience in many roles – that of actual buyer, searcher, consultant to the industry, and M&A advisor – allows her to have a 360-degree view of the entire SMB acquisition process. In this article, we highlight some of the main points of the interview, but we encourage you to also listen to the entire conversation to dive deep in the details of the conversation: 

How Searchers Can Establish Successful Relationships with Brokers

To start, Sarah warned that being a “willing and able buyer” is not enough to receive brokers’ full attention and dedication. She advised searchers to focus on having a smaller number of meaningful conversations rather than blindly sending their acquisition criteria via email blasts. Sarah encouraged searchers to approach intermediaries with the same care as any other important personal or professional relationship in their lives. 

Successful searchers are persistent when it comes to reaching out on the deals intermediaries are working on, and follow up with meaningful updates about their search. Intermediaries often have many clients and may have to balance the needs and interests of all parties involved. Be patient, persistent, and offer value (such as recommending a buyer for a listed deal). By understanding their perspective, buyers can better work with business brokers and come up with beneficial solutions.

She suggested joining supportive online communities (like Searchfunder or the Twitter small business community #SMB) to learn from and interact with other searchers.

While persistence can show a searcher is serious, specificity is also important. Buyers who can prove their experience and competency in the area/industry of the business they’re seeking can improve their chances of success. Patience and flexibility are also important, as the buying process can be complex and time-consuming, with unexpected setbacks or delays. Buyers can build stronger relationships with brokers and navigate challenges through a positive attitude and generally being flexible.

Some searchers from Sarah’s experience got quite creative in their efforts to catch her attention when looking for deals. She was impressed by the marketing strategy of a searcher who pushed for a meeting and then showed up with a coffee cup branded with his logo and acquisition criteria. She also appreciated the tactic of another searcher who formed a group of searchers from different industries and provided her with feedback on her teasers once a month. 

Building successful relationships as you start to work with business brokers involves more than being a willing and able buyer. Buyers can establish long-term relationships and become valuable clients for the broker by following the following strategies: 

  • focus on meaningful conversations; 
  • understand the broker’s perspective; 
  • be persistent and specific; 
  • be patient and flexible; and 
  • provide value beyond the transaction. 

The Importance of Having the Right Deal Team 

Sarah emphasized the need for searchers to have their deal team arranged before approaching brokers. This allows the deal process to progress smoothly and swiftly – time kills deals, after all. It starts with having a deep understanding of the acquisition process beyond just the surface level details like logos and websites. 

She recommended that searchers engage with key literature about search funds and collaborate with peers to source the ideal team for their industry and acquisition size. In particular, Sarah recommended having an experienced M&A attorney that has a track record of similar sized deals, a strong CPA to help with due diligence, and a strong advisor such as a business coach or CFO. This is particularly important in the current interest rate environment, where there is an increase in seller carry and larger seller notes. She also stressed the importance of crafting a strong deal team early on and making sure that the searcher has the right resources, such as a fund support letter and materials that prove their expertise in the industry.

With a deal team identified, she advised new buyers to search for brokers that specialize in their targeted geographies and business types. Looking at deals on online marketplaces can help buyers get a sense of the market. If you listen to the full interview, you can learn more about two stories from Sarah’s experience which perfectly illustrate the importance of having a competent team by your side. The losses incurred by a “penny-wise, pound-foolish” approach can unfortunately reach millions of dollars.

Current Obstacles and Future Predictions

Sarah also commented on buyers’ misconceptions and frustrations when it comes to working with intermediaries. In particular, she highlighted a coming trend in the SMB acquisitions space: with increasing numbers of seller retirements, brokers will need to adjust in order to facilitate a functioning market. This means shedding negative perceptions of search funds and finding ways to support less experienced buyers.

In the Q&A section of the conversation, among other things, Sarah shared her observations on the current valuation levels. According to her, high-quality businesses within the top 10% of their industry are still trading high. The top quartile has seen valuations level out, while those in the bottom 75% have come down. Valuations and multiples are becoming more reasonable, especially as different factors take into consideration the current economic environment. 

Furthermore, Sarah mentioned that in the current rising interest rate environment, where cash is not as free and available, sellers should, in theory, be more willing to offer financing options such as seller notes and installment sales, which represent tax benefits for a seller as well. 

We thank Sarah for being on our show and for having highlighted some of the challenges and opportunities that exist in the industry for buyers who are just starting to work with business brokers. As we continue to navigate the ever-changing landscape of SMB acquisition, Private Market Labs will support buyers, sellers, and intermediaries in service of a stronger SMB acquisitions market for all. 

Submit your response

Your email address will not be published. Required fields are marked *