For those who want to buy a business, working with brokers is basically a given in today’s deal sourcing environment, particularly for transactions of size. You need to know how to build not only a working relationship but ideally a true partnership with brokers in your space, while still maintaining an appropriate level of objective skepticism. This will often make the difference between getting a deal over the finish line or ending up with no deal at all, especially when there are competing suitors in a process.
Simply having an intermediary involved can increase the likelihood of a deal closing, reportedly by as much as 18% versus proprietary-sourced deals, so knowing how to work well with them should increase the odds of closing a deal you’re happy about even more. Having already written about the pros and cons of working with intermediaries from a buyer’s perspective (Link to Brokered Deals from the Buyer’s Perspective), this article will build on that to walk you through exactly how to engage with brokers in the most productive and advantageous way. These tips and tricks are especially crucial to keep in mind for independent sponsors or searchers, since brokers will often view you as a one-time buyer and therefore not make the same effort that they might with a repeat-player fund. So it’s very much in your best interest to be proactive and go above and beyond in building rapport on your end. That said, the practices below can and do help funds differentiate themselves in brokers’ eyes as well, thereby gaining a competitive advantage in the ever-cutthroat world of brokered deals.
How to Supercharge a Broker-Based Search
Seize the Day: A little initiative goes a long way. Salespeople such as business brokers are not typically accustomed to someone reaching out to ask them to lunch, so it can often make an unusually favorable impression. Too often, a buyer’s approach to brokers is purely reactive, responding to a broker’s listing or outreach and getting pulled straight into their funnel. A much better approach is to proactively research the leading brokers in your target market (whether by geography, industry, size, etc.) so that you can begin building relationships with them. This is especially important if you plan to be a repeat player in the market. Over time, such relationships can give you preferential access or early looks at potential deals that have not already been picked over and squeezed like a supermarket avocado. And when you do decide to enter into an acquisition process, it will typically run much more smoothly if the relationship is already solid.
Set Communication Norms Upfront: Human communication is rarely without friction, and this is especially true when parties are not on the same page regarding protocol. In dealing with a new broker, figure out the answers to the following questions early:
- Are calls or emails the preferred method of interfacing, and does that vary depending on the type of request?
- What times of day and week are best to communicate?
- Should a broker’s whole deal team be CC’d on everything, or only certain people for certain things?
- Will a virtual meeting service be used, and if so, which one?
- Can sensitive data be shared by email, or will a centralized data room be required?
It’s best to align on these questions before an acquisition process gets going in earnest. Regardless, though, if you ever find yourself in a situation where email is going into a black hole or alternatively an email chain is spiraling out of control, do not be afraid to simply pick up the phone and try to hash things out live. This can often save time and be far more efficient for both parties.
Make Your Positions Clear Upfront: If there are deal breakers regarding business attributes, price, financing, etc. that you will not budge on, convey those early. That way, the broker can inform you of exceptions right away. You should also keep the broker in the loop on the general thesis of your potential investment and any major concerns you have, though without fully tipping your hand (or, especially, letting them know how excited you may be about a particular opportunity). This helps them focus their efforts in terms of information sharing and keeps you from wasting their time on a deal you won’t end up doing.
Don’t be a Looky Loo: If you repeatedly jump into processes just to “kick the tires” and learn about businesses you are probably never going to buy, you will acquire a bad reputation among brokers and sellers for wasting people’s time. This is especially true in markets where brokers and buyers tend to be repeat players. If you want to do this occasionally for intelligence gathering purposes, be very strategic and limit it as much as possible.
Get It in Writing From Day 1, But Don’t Nitpick Excessively: Starting with an NDA all the way through closing documents, the key points of a deal negotiation and its terms should be documented in writing. This protects both sides, and will be the normal mode of doing business for reputable and experienced brokers. But it never hurts to emphasize that it’s your expectation as well. Since the NDA negotiation is typically the first step of this process, make sure it reflects any non-negotiable terms you bring to the table, just don’t nitpick or push back simply for posturing purposes, as that risks setting a bad tone for a relationship still in its early stages. And if you make it all the way to negotiating a purchase agreement, obviously make sure that you get the best deal possible (and protect yourself adequately) on key terms, but remember that it is a two-sided *negotiation* and don’t push back unnecessarily on tiny things just to score a win.
Organization = Consideration: Many buyers tend to view brokers as garbage disposals into which they can dump any and all requests as they come to mind. Needless to say, brokers do not appreciate this, so when you go into an actual process with one, make an effort to be deliberate and organized in your communications, grouping requests and foreshadowing diligence needs ahead of time when possible. Making the effort to create a master work plan—as well as updating it as the process evolves—will make life easier for everyone. Ideally, this should be a centralized document or spreadsheet with data needs, intended meetings, timelines, and owners for each action item. And summarizing requests for new information in a daily or weekly email (versus firing them off as they come to you) will win you points with a broker’s overworked deal team.
It may sound trite, but following the golden rule can make you stand out in a broker’s mind. If you expect structure, organization and responsiveness from a broker, you should uphold those standards on your end as well. Always be professional and respectful, and if there are opportunities to make a broker understand that you’re genuinely soliciting their knowledge and expertise, as opposed to just hammering them for data, use those to strengthen the relationship and build rapport. This can include having conversations about the seller’s motivations and mindset or asking a broker (especially one affiliated with a bank) to help assemble potential financing packages or add-on acquisition lists. But never forget that the broker represents the seller and will present everything in light of that. Trust, but verify!
Look for Additional Engagement Points: A really good broker brings a lot of potential value to the table, even outside a deal process, from sourcing add-ons, to making intros to potential suppliers or customers, to offering financing options or even connections with LPs. Take advantage of it, and you may both benefit. If you’re affiliated with a PE firm, you might introduce a broker to existing portfolio investments to inquire about operational financings or merger options, or put them in touch with colleagues at other firms where they don’t have a relationship. Any broker appreciates this kind of attention and potential revenue opportunities, and will be more likely to make you the first call when there is an opportunity to return the favor.
Don’t Go Behind the Broker’s Back: The vast majority of NDAs prohibit you from dealing with the seller directly, so never try it unless the language in your NDA specifically allows it, or, perhaps, if you have not signed anything (and even then, there is a high risk you will burn the relationship with the broker while discovering that the seller’s contract precludes them from speaking with you).
When Necessary, Don’t be Afraid To Push Back: Brokers with experience have a certain process with specific requirements which they like to stick to. You should respect this, but if you have a legitimate need (especially one that has been consistently conveyed) that has not been met by a deadline or other aspect of the process, don’t be afraid to honestly inform the broker that you cannot move forward until the concern is resolved. If it’s significant, other potential buyers may be raising the same question. And if they’re not, it may be a deal you want to reconsider pursuing, as unsophisticated competitors might be willing to bid more for the target than it is worth.
Conclusion: The Middle is a Tricky Place to Be
A broker is a little like a boxing referee, but one who stands directly between the fighters as they trade blows! And while brokers (almost always) contractually represent the seller’s interests (Link to Choosing a Broker to Sell Your Business)—and are therefore the buyer’s natural adversary—experienced PE dealmakers and independent sponsors know that establishing a cordial relationship can make even difficult deal processes end well (and profitably). It’s about turning a potential adversary into an ally of sorts by treating them well and expecting them to reciprocate, affording respect while remaining firm in your own objective price and diligence needs. That’s the essence of professionalism, and it’s unfortunately not always commonplace today. It applies equally to sellers, of course, and in the future we plan to add a post exploring best practices for sellers who are dealing with brokers. Since intermediaries seem to be an increasingly important fact of life in private equity transactions, we would like this to be an ongoing discussion. If you have additional tips or tricks from your experiences working with (or as!) a broker, please tell us about them.