Business Brokers

Mergers and Acquisitions Brokers/Intermediaries/Advisers are generally small firms specialised in the sale of middle market companies, where Middle market companies are defined as companies with market value over $5M. While the M&A process tends to differ depending on the size of the businesses available for sale, it is very common that M&A brokers represent the interest of the sellers and are paid by sellers.

M&A intermediaries try to make the business as attractive as possible to a large audience of potential buyers and try to create a bidding process to get the maximum price for the business. In order to avoid putting a cap on the potential sale price of a business, M&A professionals tend to avoid  putting an asking price on the business so that potential bidders are not limited to a specific number, which could maximize the offered price. The best offer is generally the one with the highest price and is generally presented by the potential buyer that has the maximum synergy with the business offered for sale. Potential synergies are numerous and could include, cost cutting, access to new technologies, access to new markets, access to brand awareness, scale economies etc.

While this approach could certainly increase the sale price in many circumstances, it could also backfire in the following circumstance.

1. In times of recession, the mergers and acquisitions activity tend to decline dramatically and strategic buyers are much less likely to purchase business than other buyers. The bidding process tends to fail as there is rarely any bidder. The few existing buyers tend to look for bargains and favor businesses that are listed with a clearly stated asking price.
2. Smaller buyers such as wealthy individuals, smaller companies and private equity funds tend to avoid the whole bidding process because they do not want to overpay for a business. As a result, these buyer tend to stay on the sidelines whenever a bidding process is being prepared.
3. Offers on businesses are never firm. They are always subject to a very subjective due diligence process. Some buyer know how to play the bidding war by always offering higher prices than market value of companies. After they conduct their due diligence, they frequently find a large number of reasons why the company is not worth what they offered and try to negotiate the price for a much lower amount than initially offered. At that time, all other offers are off the table. The business gets a negative stigma since other potential buyers wonder about the negative aspects the due diligence has revealed. The seller is then under huge pressure to sell at a much lower price especially if his/her timeline for selling is approaching the end.

For the reasons above, we consider this bidding process a high risk process and generally do not recommend it unless the seller is very flexible in his timeline to sell.