When it comes time to sell your business, choosing the right business intermediary can make all the difference in achieving a successful outcome. An experienced and skilled business broker or M&A advisor can help you navigate the complex process, maximize your company’s value, and find the ideal buyer. However, not all intermediaries are created equal. This comprehensive guide will walk you through the key factors to consider when selecting a business intermediary to represent your interests.
Understanding the Role of a Business Intermediary
A business intermediary serves as a crucial link between buyers and sellers in the mergers and acquisitions process. Their primary responsibilities include:
- Valuing the business accurately
- Confidentially marketing the company to qualified buyers
- Vetting potential acquirers
- Facilitating negotiations
- Managing due diligence
- Coordinating with other advisors like attorneys and accountants
- Guiding the transaction through to closing
An adept intermediary brings specialized expertise, an extensive network, and proven processes that can significantly impact the outcome of your business sale. They act as your advocate and trusted advisor throughout what is likely to be one of the most important financial transactions of your life.
The Importance of Experience and Track Record
When evaluating potential intermediaries, one of the most critical factors to consider is their level of experience and track record of success. Look for an advisor who has:
- At least 10 years of experience as a full-time business intermediary
- Closed a substantial number of transactions, ideally 50 or more
- Worked with companies similar in size and industry to yours
- A high success rate in terms of businesses sold vs. listings taken
An intermediary who has “been there, done that” many times over will be better equipped to anticipate and overcome the inevitable challenges that arise during a business sale. They’ll have refined processes, established relationships with buyers and other deal professionals, and the ability to creatively solve problems.
Don’t be afraid to ask detailed questions about an intermediary’s experience and request references from past clients. A seasoned professional should be happy to share their track record and put you in touch with business owners they’ve successfully represented.
Industry Knowledge and Specialization
While a generalist business broker may be suitable for some smaller Main Street businesses, most middle-market companies benefit from working with an intermediary who has deep knowledge of their specific industry. An industry specialist will:
- Understand the unique drivers of value in your sector
- Have relationships with strategic and financial buyers active in your space
- Be familiar with industry-specific regulations and deal structures
- Speak the language of your business, enhancing credibility with buyers
When interviewing potential intermediaries, probe their level of expertise in your industry. Ask about recent transactions they’ve completed in your sector and their perspective on current market trends. A true specialist should be able to demonstrate in-depth knowledge that goes beyond surface-level information.
Marketing and Deal-Making Capabilities
At its core, the role of a business intermediary is to market your company and facilitate a transaction. Therefore, it’s crucial to assess their capabilities in these areas:
Marketing Approach
Inquire about the intermediary’s process for confidentially marketing businesses. They should have a multi-faceted approach that includes:
- Developing a compelling “teaser” document and comprehensive offering memorandum
- Leveraging proprietary databases of qualified buyers
- Utilizing online deal platforms and networks
- Conducting targeted outreach to strategic acquirers
- Maintaining strict confidentiality throughout
Ask to see samples of their marketing materials and discuss how they would position your specific business to potential buyers.
Deal-Making Skills
Equally important are the intermediary’s skills in structuring deals, negotiating terms, and seeing transactions through to closing. Look for evidence of:
- Creative deal structuring to overcome obstacles
- Strong negotiation abilities to maximize value for sellers
- A track record of getting deals across the finish line
- Experience with various transaction types (asset sales, stock sales, mergers, etc.)
The best intermediaries are those who can artfully balance the interests of buyers and sellers to craft win-win deals.
Valuation Expertise
Accurately valuing your business is a critical first step in the sale process. An experienced intermediary should have a rigorous approach to business valuation that considers:
- Multiple valuation methodologies (comparable sales, discounted cash flow, asset-based)
- Industry-specific valuation multiples and benchmarks
- Both tangible and intangible assets
- Growth potential and risk factors
Be wary of intermediaries who provide an unrealistically high valuation just to win your business. A trustworthy advisor will give you an honest, well-supported opinion of value based on market realities.
Communication and Availability
Selling a business is an intensive process that requires frequent communication between you and your intermediary. As you evaluate potential advisors, consider:
- Their communication style and frequency – do they proactively keep clients informed?
- Availability and responsiveness – will they be accessible when you need them?
- Willingness to explain complex concepts in understandable terms
- Ability to manage relationships with multiple stakeholders (buyers, attorneys, accountants, etc.)
You want an intermediary who will be a true partner throughout the process, keeping you updated and involved while also shouldering much of the day-to-day work.
Professional Network and Resources
A well-connected intermediary can add significant value by tapping into their professional network. Inquire about their relationships with:
- Potential strategic and financial buyers
- Investment bankers and private equity firms
- Attorneys specializing in M&A transactions
- Accountants and tax advisors
- Lenders and other sources of acquisition financing
Additionally, ask about the resources and support staff available to assist with your transaction. Larger intermediary firms may offer advantages in terms of research capabilities, marketing reach, and administrative support.
Credentials and Continuing Education
While not a guarantee of quality, professional credentials and ongoing education can be indicators of an intermediary’s commitment to their craft. Look for designations such as:
- Certified Business Intermediary (CBI)
- Mergers & Acquisitions Master Intermediary (M&AMI)
- Certified Merger & Acquisition Advisor (CM&AA)
Also inquire about their participation in industry associations and continuing education programs. The M&A landscape is constantly evolving, so it’s important to work with an advisor who stays current on best practices and market trends.
Fee Structure and Alignment of Interests
Understanding an intermediary’s fee structure is crucial to ensure alignment of interests. Most reputable intermediaries work on a success fee basis, meaning they only get paid if and when your business sells. This model incentivizes them to achieve the best possible outcome for you.
Be cautious of intermediaries who require large upfront retainers or charge high fees regardless of whether a sale occurs. While some advisors may charge a modest retainer to cover initial expenses, the bulk of their compensation should be tied to successfully closing a transaction.
Discuss the proposed fee structure in detail, including:
- Success fee percentage and any sliding scales based on sale price
- Treatment of earnouts or other contingent payments
- Fees for additional services beyond the core engagement
- Minimum fee thresholds
Ensure you have a clear understanding of the total costs involved before engaging an intermediary.
Cultural Fit and Trust
Beyond the technical qualifications, it’s essential to choose an intermediary with whom you feel comfortable on a personal level. You’ll be working closely with this advisor during a high-stakes, emotionally charged process. Look for someone who:
- Truly listens to your goals and concerns
- Demonstrates integrity and ethical behavior
- Has a personality and communication style that meshes well with yours
- Instills confidence while also being realistic about challenges
Trust your instincts when it comes to assessing cultural fit. If something feels off during initial meetings, it’s unlikely to improve once you’re in the thick of a transaction.
Due Diligence on the Intermediary
Just as buyers will conduct due diligence on your business, you should thoroughly vet potential intermediaries before making a selection. Some steps to consider:
- Request and contact multiple references, including both successful and unsuccessful engagements
- Research the intermediary’s online presence and reputation
- Check for any disciplinary actions or complaints with relevant regulatory bodies
- Verify their claimed credentials and memberships
- Ask about their errors and omissions insurance coverage
Taking the time to conduct proper due diligence upfront can help you avoid potential issues down the road.
Making the Final Decision
After considering all of the factors outlined above, how do you make a final decision on which intermediary to engage? Here are some closing thoughts to guide your selection:
- Don’t base your choice solely on who provides the highest valuation. An unrealistic asking price can doom a transaction from the start.
- Be wary of intermediaries who make grandiose promises or guarantee specific outcomes. Selling a business is inherently uncertain.
- Consider the overall value proposition, not just the fee. A more experienced intermediary may command higher fees but deliver superior results.
- Trust your instincts about which advisor you’ll work best with during a lengthy and sometimes stressful process.
- Remember that you’re not just hiring an individual, but often a team and firm. Ensure you’re comfortable with the entire organization.
By thoroughly evaluating potential intermediaries across all of these dimensions, you’ll be well-positioned to choose an advisor who can guide you to a successful business sale. While the selection process requires time and effort, partnering with the right intermediary is one of the most impactful decisions you’ll make in maximizing the value of your life’s work.
