Partnering with Sell-Side Brokers as a Buyer

Before we started Private Market Labs, both of us were each looking to buy a business. This led us to public listings sites with thousands of broker-represented businesses. Lacking in information and bearing headlines such as “VERY GOOD BUSINESS HIGH PROFIT AND GREAT POTENTIAL”, we felt skeptical of these listings and the brokers that put them together. Our skepticism solidified when we contacted multiple brokers with a checklist of questions and received very few responses. 

This story is not unique: buyers across the small business ecosystem regularly complain about working with brokers. While it’s true broker quality can vary, we would instead argue that searchers have been wrong about brokers. They provide an essential service. Our challenges working with brokers early in our small business acquisition journey were largely due to our own errors.

In reality, brokered deals represent a buyer’s best opportunity to find, do diligence on, and close on a quality SMB acquisition. There’s a clear reason for this: selling a business is difficult. It is emotionally taxing and logistically complicated, requiring a business owner to put a price on their life’s work. Business owners must do this while simultaneously keeping their operations running smoothly. Deciding to sell a business is not easy. Sellers that hire a broker are sending a strong signal to buyers.

  1. They’re committed to facing the challenges of the M&A process.
  1.  They’ve brought in professional support because they understand how challenging the process can be.

The level of commitment inherent in a brokered transaction makes a successful close substantially more likely. In contrast, business owners found through cold outreach are often less motivated to sell, making them more likely to pull out of a deal midway through the process. Additionally, owners that don’t use brokers are not as well-prepared when it comes to gathering the financial and operational information that a buyer needs to evaluate the business. 

For a buyer, taking advantage of brokered search requires some strategic preparation. Brokers report that up to 90% of buyers they interact with on a daily basis are unprepared to transact. They don’t have a good sense of a broker’s listings. They don’t have a clear financing strategy. They are not well-informed about the buying process. Frequently, buyers come to the table with all of these deficiencies. As a result, even buyer-friendly brokers have to carefully manage both their time and the time of their sellers. This is particularly true in sellers’ markets, with multiple buyers reaching out on each potential deal. After talking with hundreds of brokers, we understood where we made a mistake in our outreach. We asked general questions without being willing to share details about our acquisition strategy. We sent single emails through listings sites without following up by phone. Despite these unforced errors, a few kind brokers were willing to chat with us anyway. However, we were far from being the type of buyer respected by brokers. You can avoid making our mistakes using these recommendations:

  1. Be prepared. Understand a broker’s current listings, industries and geographies of focus, and typical deal sizes. Make sure that you understand a broker’s work before reaching out to ensure that you’re contacting the right person. Our Broker Directory is the right place to start for this step.
  1.  Be organized and specific. Effectively communicate your search criteria, your qualifications, and your specific ask of a broker in order to stand out.
  1. Be able and willing to talk finances. Brokers are especially wary of connecting their sellers with buyers that won’t be able to close on a transaction. The financing method matters less than confirming your access to the necessary dollars. For example, a self-funded searcher can maximize their chances of getting a broker’s attention with a letter of support from an SBA lender and proof of funds for a down payment. 

Overall, brokers are essential because they have the best information in an opaque process. They’re connected with the business owners that are most likely to sell and are dedicated to providing sellers with the support they need to complete transactions. As a buyer, you can maximize your chances of acquiring a business by including brokered search in your buying strategy.