Business Briefs |
How To Select An Intermediary
If you're considering hiring an intermediary to help you buy or sell a middle market company, here are ten keys to selecting a good one. These tips are based on 30 years experience buying and selling my own companies with and without an intermediary, being an intermediary personally, and dealing with intermediaries on the “other side of the table” in transactions over the years.
Some of this guidance might be a little unconventional, but it’s a summary of what I’ve learned out in the marketplace - seeing the good, the bad and the ugly. Like any profession, there are excellent intermediaries all across the country. Unfortunately, there are many who are not so hot. Buying and selling a company is a serious and important matter, and you should have first rate representation. Hopefully, what follows will give you some ideas about what to look for so you can select the right intermediary for your situation. It’s the advice I’d give my best friend if I was unable to represent him personally.
There you have it, the 10 keys to selecting an intermediary. It’s probably obvious that here at CrossPointe, we believe we can pass a test like this. But we’re not the right fit for every situation and there are many other capable intermediaries. If we are not the correct firm to help you with your project, we’ll be happy to try to help you find one that is.
Here’s to The Biggest Payday of Your Life™ –
Michael Sipe
Some of this guidance might be a little unconventional, but it’s a summary of what I’ve learned out in the marketplace - seeing the good, the bad and the ugly. Like any profession, there are excellent intermediaries all across the country. Unfortunately, there are many who are not so hot. Buying and selling a company is a serious and important matter, and you should have first rate representation. Hopefully, what follows will give you some ideas about what to look for so you can select the right intermediary for your situation. It’s the advice I’d give my best friend if I was unable to represent him personally.
- Entrepreneurial Experience. Not counting his current brokerage business, has the intermediary ever started, bought and sold his own companies? If someone has not paced the floor in the middle of the night sweating about cash flow, if he’s not dealt with employees, vendors, landlords and bankers (on his own dime), if he’s not ever managed a business profitably, then there is no way he can really fully relate to the concerns of business buyers and sellers. Select an intermediary that is also an entrepreneur. His or her business experience will manifest itself repeatedly throughout the transaction and both buyers and sellers will note in relief, “Ah, here’s someone that understands!”
- Street Smarts. Frequently, new business brokers expound on their corporate mergers and acquisitions experience. However, working as part of a big corporate team divesting and acquiring businesses using public money is a far cry from the realties of helping entrepreneurs buy and sell private companies. Big companies and big international deals sound compelling, but in most cases, if you had to choose, you’d likely be better served by a capable mainstreet business broker who’s sold a few hundred gas stations than a corporate guy who’s “green” to the entrepreneurial world.
- Longevity. As my favorite flyfishing guide says, “There’s simply no substitute for time on the river.” An intermediary who has not been closing deals out in the marketplace for at least ten years might be smart, talented and well meaning, but they simply do not have enough seasoning to achieve optimum results consistently. There is much turnover in the M&A profession. It looks like a great career (and it is). It’s pretty easy to get started (print business cards), but it is extremely difficult to survive and thrive long term as a business intermediary. It takes financial, physical and emotional staying power to last 10 years or more. Longevity brings wisdom, patience, persistence and the emotional stability to ride the rollercoaster of a deal without getting overly excited about positive developments or overly panicked by an adverse turn of events. Being an intermediary is a lot like being an experienced flyfisherman – you’ve gotta love the process. When the fishing is good, you fish harder and enjoy every minute. When it’s bad, you embrace the challenge. You fish even harder, and still enjoy it. It’s that same kind of confidence, belief, commitment and passion that makes a good intermediary.
- Lots of Deals. It takes brokering about 50 deals to really begin to get a solid handle on this profession. There are simply too many variables in transactions to make a claim to mastery with any less. And it’s not just knowledge; it’s the practice at anticipating potential problems, responding to the unexpected challenges and salvaging the apparently unsalvageable. What I’ve seen repeatedly, both as an intermediary and as a buyer and seller, is that you’re better off with an intermediary who’s closed 100 transactions, of any size, than by a guy who hit a home run and completed 1 monster deal. Even novices can get lucky and hook a big fish, but you can bet an angler who’s landed 1,000 trout knows how to fish. Same with deal makers.
- Marketing and Sales Experience. Many people enter the mergers and acquisitions field with law, accounting and finance backgrounds – especially those migrating from a corporate background. These are all relevant areas of experience. However, first and foremost, you hire a broker for their marketing and sales ability. You need someone who’s superb at marketing so they can source multiple qualified prospective buyers. As we shift into a buyer’s market for businesses for the foreseeable future, prospecting for just the right match will be imperative. Then there’s the sales part. Selling a company discretely, confidentially, legally, ethically, for top dollar and in a manner that it stays sold after the closing takes extremely well honed sales skills. With every intermediary you interview, dig deep to discover their actual marketing and sales expertise. Where did they learn their sales skills? What are they doing to develop as a sales professional? What will they do on your project that is unique and different? What will they do that will make your company stand out and be attractive to multiple buyers? What’s their success rate, i.e. percentage of closed assignments? Tip: Look for someone with better than a 75% success rate. What are their sales strengths and weaknesses and how do they compensate for their weaknesses? As their “partner” in this process, who will have what role in the selling conversations and how can you augment each other’s strengths and weaknesses?
- Life Experience. Select an intermediary with a depth and breadth of life experience. This should enable them to relate to a wide variety of prospects for your project. After over thirty years in sales and 20 years in the deal business, if I had to pick the top selling and negotiating skill a sales professional and an intermediary needs, it’s the ability to use metaphor and analogy to attract, qualify, persuade, clarify, negotiate and close. These powerful linguistic tools can only be used effectively when the sales professional has many reference points and stories gleaned from real life experiences and is skilled at integrating them wisely into the sales and negotiating process. Ask anyone you interview for examples of how they routinely use analogy and metaphor in their sales conversations.
- Competitive Fire. Buying and selling companies is an endeavor filled with competition. Intermediaries compete for attention, for priority, and for resources. Intermediaries compete against the sheer difficulty of confidentially and successfully making a market for private companies – it’s perhaps the toughest selling assignment there is. Success requires a spirit of hope, positive expectancy, grounded confidence, determination and unflagging persistence. A history of past successes lays the foundation for future wins. There are many training grounds that build the competitive spirit you need from an intermediary – the arts, sports, martial arts, outdoor adventures, and the military. How does the person you are interviewing to represent you say they developed and continue to hone their competitive fire?
- Technical Knowledge. Although your mergers and acquisitions advisor will not fill the roles of your attorney and accountant, he or she must be extremely proficient in the business, legal and tax concerns involved in the purchase, merger or sale of a business. A middle market deal is complex and requires the intermediary to understand a staggering number of organizational, operational, structural and transactional issues. It takes years and thousands of hours of continuing professional study to master this broad body of knowledge. In every transaction, the dealmaker is called upon to mediate diverging opinions and positions taken by the respective professional advisors for buyer and seller. If the intermediary does not understand the issues and can not help you navigate through them – if they can not break the legal and accounting impasses that frequently occur, you will not be well served. Your deal will fall apart or your results will not be optimized. Unfortunately, the technical competence of an intermediary is something that you may not be able to test very well. Here are a couple of suggestions: (i) Have your attorney or accountant interview them along with you and quiz them on a few typical technical issues that a capable M&A advisor should backwards and forwards. (ii) Ask them a couple technical questions yourself and listen for the detail and depth of thought with which they answer. For example, there are approximately 72 discrete elements required in every well constructed Letter of Intent. A good intermediary should be able to “teach a course” on Letters of Intent “off the cuff.” Or ask them to explain (in clear language) Section 500 of the California Corporations code and how it impacts purchase and sale transactions involving partial redemption of stock. However you do it, test the technical competence of the intermediary you are considering hiring before you put your negotiations in their hands.
- Values. Everyone claims to be ethical and have integrity. After all, who would say, “I’m a scoundrel, but hire me anyway.” So you’ve got to scrape off the surface claims of honesty and ethics and get a sense for the true values of the person you are interviewing. Upon what do they base decisions of “right and wrong?” What are their personal and professional standards of ethics? Intermediaries are constantly called to walk a narrow ethical line in the course of a deal – full disclosure and honest dealings while still trying to sell what is always an imperfect risky deal that is fraught with uncertainty. As your potential intermediary to describe a couple of examples of how they have worked through ethical deal dilemmas. Buying and selling a business is dangerous ground and you are appointing someone to represent you and your business. Assure yourself you can trust them.
- Chemistry. Finally, you’ll invest the next 6 to18 months with the person you hire to help you buy or sell a company. Mergers and acquisitions is a serious business, but it does not have to be grim. Will you enjoy the process? Will you enjoy working with this person. Do you “click?” Do you think potential buyers (or sellers) will be attracted to and trust your intermediary? Sometimes people say, “I don’t care whether I like the dealmaker or not. I want someone who is a fierce negotiator – the meaner and tougher the better – who will grind away on my “opponent” to get me the best price. It does not work that way in the real world. Here’s what buyers (for example) say when the seller’s intermediary is a jerk: “This guy is a jerk. If he is any reflection of the seller’s character and judgment, this is not the deal for us. We’re out of here.” So hire an intermediary with strong character, communications skills and relational abilities. One who will reflect well on you and your company and who can build a bridge between you and the other party in the transaction that leads to an optimal, lasting and dignified deal.
There you have it, the 10 keys to selecting an intermediary. It’s probably obvious that here at CrossPointe, we believe we can pass a test like this. But we’re not the right fit for every situation and there are many other capable intermediaries. If we are not the correct firm to help you with your project, we’ll be happy to try to help you find one that is.
Here’s to The Biggest Payday of Your Life™ –
Michael Sipe
