How To Choose The Right 'Broker' (intermediary) To Sell A Mid-Market Business
How to choose the right intermediary to sell your business from the circa 1,000 firms in the UK who sell businesses?
One needs to do better than simply finding "a good 'un" in order to get the best price.
Even among the better firms, there are some more suited to a particular business and able to get that business a substantially better price.
But how can business owners predict who can "get them the best price"?
I've spent 10 years assisting business owners with just this, to great success and rave reviews from clients.
Below, I share some of what I've learnt and which you can use to your advantage if doing the search yourself. (I'm also happy to share a sample report demonstrating a real life example of how the filtering and shortlisting process works. If you're a mid-market UK business, simply contact me and request it.)
But, warning: Finding the perfect partner to get the highest price / best terms takes effort!
Clinton Lee
SECTION 1: BACKGROUND KNOWLEDGE REQUIRED
You need to widen your search past just business brokers
When it comes to larger businesses (£5m and above), it's M&A firms, transaction advisory firms, corporate finance outfits, boutique investment banks, strategy advisories etc who handle the best deals and get the best prices for clients.
They are collectively known as intermediaries or advisories.
Advisories are geared for larger businesses, they have highly qualified accountants, corporate finance experts, qualified valuers, tax specialists etc., unlike with business brokers.
There are hundreds of advisory firms in the UK. They take on only larger businesses and have a different charging structure to business brokers.
But readers need to exert caution; not all 'advisories' are genuine advisories. Some are just business brokers posing as advisories!
It's important to learn how mid-market deals are different
Selling a mid-market business is not like selling a corner shop or your local fish 'n chips.
Before starting the search, business owners who do best are the ones who take the time to learn how everything is different in the mid-market. That includes the language and terminology, the professionals handling the sale, the time scales, the fees & fee structures, the process, the type of deals available etc.
Just jumping blindly in exposes owners to getting their early stage advice from the wrong sources.
Owners' specific exit goals matter as well
Some want as early an exit as possible - they want their personal freedom (not suited to private equity deals).
Some want the highest price tag.
For others, tax optimising is the top priority, so they may be better suited to exploring the possibility of an Employee Ownership Trust - EOT. There are pros and cons to an EOT.
Advisory firms have the experts who can advise on options based on the shareholders' top priorities. Brokers generally aren't qualified to do this.
Getting general advice on exit options
When I'm assisting owners with finding the right advisory, I've found it useful to take them through a discussion on the various exit routes available to them - MBO, MBI, IPO, EOT, BIMBO etc - and what each entails / involves.
I offer this advice, on a free initial call but for those businesses not large enough, or not booking a call with me, my recommendation is to find a good, trusted source who can provide such unbiased advice - accountants, independent corporate lawyers etc.
It is best to not rely on parties with vested interests to advise at this stage as they often talk up options that they find more convenient or that they are better geared to provide.
A tip on not using the official business email address
It's wise to register a free email address at Gmail or similar service and do all communication with advisory firms etc via this email address.
It allows for confidentiality in the initial stages; the identity of the business can be kept private.
However, there's another good reason.
When the business is finally sold, the buyer gets access to the business web server and to all emails historically sent / received on that server.
It can be extremely dangerous for sellers to give buyers access to these comms even if the communications were entirely benign.
SECTION 2: THE PROCESS OF FINDING THE RIGHT INTERMEDIARY
Step 1: Putting together the long list - relevance of sector expertise
The first step is putting together a long list of the most suitable firms from the hundreds of advisory firms in the UK.
When I'm doing this, I try to keep this initial list to about 30-40 of the most suitable for my client based on the sector, business size, owners' exit goals etc.
I do have extensive information on which advisory firms do what in the UK market so creating this long list is a bit easier for me. Others would start with online directories such as this one (and others!) and research each firm before adding them to the list. Checking their websites and their LinkedIn profiles is a good start as is reading their financial statements and filings at Companies House.
When vetting, it may suit the client to go with a sector specialist advisory firm. There are pros and cons to this as covered here.
In short, sector specialists will have more experience in the sector, understand deals in the sector better, have better connections with trade buyers in the sector and may be able to get a better price. But there are also downsides.
OTOH, sector agnostic advisories have broader experience and may have better ties with financial buyers such as private equity firms and may be more suitable to sellers looking to take "just a bite of the apple" ie part sale of the equity.
Step 2: Be prepared to put in the time!
Compiling a list of 30-40 of the most suitable advisories takes a fair bit of time and effort (even for me with all the data I've collected over the years!) but it is vital to not skimp on the work here.
Bear in mind that with the best ones, it's not easy to even speak with them. While one can pick up the phone to the average business broker and get through immediately, the best advisory firms are very, very selective!
One has to fill forms, disclose sector and financials, answer numerous questions, go through gatekeepers (receptionists etc who do the filtering) before ever being put through to their M&A / corporate finance experts to discuss the potential sale!
These highly qualified professionals need to have all these barriers in place to protect against the average one-man band plumber or hair salon wasting their time. They don't want to talk to a business unless that business is likely to fit the profile they want (in terms of not just size and profitability but various other factors as well! Hence the form-filling.)
If you think that's all too much hassle, remember that the average business broker successfully sells only 10% to 20% of the clients they take on. Good advisory firms tend to sell closer to 90%.
Step 3: Focus on size - advisories that have sold businesses of a decent size, not just microbusinesses
Focus on mid-market players. It's easier said than done as many players who should really be calling themselves business brokers pretend to be mid-market advisories!
But when push comes to shove they can't show examples of completed deals in the mid-market.
They'll talk about "live" deals that they're currently working on but can't disclose names of the client as the deal is not yet complete! Yeah, sure.
Or they'll claim confidentiality prevents them talking about past deals. This is nonsense.
Or they'll provide examples of deals and it's not till you go digging around a bit that you find it wasn't a mid-market deal but one worth £100K or £200K.
Size matters. Selling a £10m business is not the same as selling a £100K business despite what some may say. Online business directories like this one I created, sometimes break down advisory firms by the size of deals they do.
Be warned though that there are still hundreds of advisories (even after using a size filter)!
Many give examples of deals that, on inspection, turn out to not be sell-side advice ie. they assisted the acquirer. That's not the same thing as having sell-side experience!
Many provide examples of fund raising work they've done or other work in the sector like insolvencies etc., which are relevant. These examples, too, need to be excluded.
It's amazing how often these firms say they've got examples of exactly what's asked and then proceed to give completely irrelevant ones - deals in unrelated sectors, for businesses of a much smaller size, for businesses where they provided buy-side advice rather than sell-side advisory work etc!
Step 4: Don't just accept their word on the deals they claim to have done!
Never, never, never.
Every claim needs to be checked. Sold a business? Was there a press release at the time issued by either the acquirer or the target? If so, the advisory firm involved would likely have been named. Perhaps the advisory can provide a link to the press release.
Did that company they claim to have sold ...actually get sold? Companies House filings will show change in directors and change in shareholding. It needs to be checked.
Was that company actually a mid-market firm rather than a one man band? Accounts filed at Companies House would shed some light.
Did the advisory actually perform sell-side assistance ie did they actually handle the sale? Would the previous owners of that business provide a testimonial for the advisory and are they open to taking a few questions?
Step 5: Don't just accept their word on their success rates or the 'multiples' / great price they achieve for clients
Firms often claim "success rates" they've had with their clients.
They may even confidently quote very specific numbers - "we successfully sold 83.6% of clients we took on".
There are many ways of calculating success rates and there are a million ways to fiddle the stats not to mention enormous difficulties with comparing as explained here.
As success rates can't be verified, or compared, I discount all such claims.
Similarly with the average multiples.
Firms often boldly state that they generate on average 12x EBITDA or whatever. It's complete baloney as I've found in cases where advisories provided me access to their internal records and I could calculate the multiples myself.
Step 6: Awards are mostly meaningless
There are lots of awards in this industry and they're often given away to underserving candidates who happened to "donate" £2,000 for tickets to a gala awards evening!
In other cases, the award categories are so minute that the award is meaningless - "the best advisory in the telecoms sector in western Witney" or similar.
A advisory can't be judged by the awards they've won.
Step 7: Creating the shortlist
Whittling the 30 or 40 down to a shortlist of about six takes, as one would expect, a fair bit of time and effort.
However, the advisories making it through the process are the cream of the crop.
Engaging one of them should result in a much higher chance of a successful sale and on much better terms for the sellers.
There is further vetting to be done and good questions to ask those shortlisted parties, but that's a story for another day.
Conclusion
If you found this useful, book a free, no-obligation call with me to discuss, in confidence, your own mid-market business and your strategic plans / disposal intent.
No sales pitch. Simply good information and insightful answers to your questions.
If you want a sample of a report I've prepared for a previous client, to get a better idea of how all the above works in real life, I'm happy to share a sample with owners of mid-market firms. Send me a DM and I'll attach a copy of a report to my reply.
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