The truth about M&A firms- A must read for any business owner contemplating a sale!

The current marketplace for buying and selling a business unfortunately can be treacherous terrain.  Unlike Real Estate which utilizes an MLS ( Multiple Listing Service), the private business for sale market does not and this makes it much more challenging  than selling a home or commercial space. So therefore when the decision has been made to sell, it is crucial to hire a professional brokerage firm with a proven track record that knows how to sell businesses in this inefficient market.  If not, it can be a long, expensive and frustrating process. Let me explain!

Even the best, most profitable and fundamentally sound businesses never get sold- If you hire the wrong firm. Here are some things to think about when hiring an M&A Firm or Investment Bank to sell your business.

The first thing you should know is M&A Firms survive by charging retainers; NOT by selling companies!  Here is the cold hard truth about this industry that they do not want you to know. The majority of M&A firms close on 0 to 1 businesses every year. Not 5, not 10- Zero to One! These firms pitch their clients by selling a marketing “book” which is an in-depth investment memo that is 30-40 pages in length which is complete overkill and is mostly filled with self- promotion. Don’t be sold on these marketing packages. They are ridiculously expensive (25K and up) and are totally not necessary. M&A firms also charge for a full valuation report which is also unnecessary because business are sold at “Fair Market Value”. That is defined by the price  at which buyer is willing to buy and a price at which a seller is willing to sell. No fancy valuation report for another 20K is going to help the seller get any more money in the end. A top dollar price comes down to the amount of buyers you have and the broker or salesman handling the listing. It’s that simple!

M&A firms also charge 5-10K every month for “ maintenance” on top of the other fees previously mentioned.  So after a year or two and no success- guess what?!? You have  less money than you started with, no deal, and time lost that can never be replaced. Even if the retainers are deducted out of the total commission at closing, it still does NOT make sense when the probability (0 to 1) of them finding a buyer and closing a deal is so minimal.

The incentives are totally misaligned. Three rounds of heavy fees and a suite of services the seller does not need is a major flaw in this type of valuation/pitchbook/retainer/maintenance fee model. In their quest to sell, many owners who reach out to one of these firms first are scared off by all of the upfront fees and abandon their thoughts of selling completely.  It is disheartening to them “the seller” and frustrating for us.

Paying for performance is the name of the game. A small “commitment” fee is one thing. Paying 100k+ and not selling your business is a totally different ball game. Ask your advisor/broker how many deals they have closed in the past year? Get references! Make them put their money where their mouth is. If they have not sold at least 10 businesses in the past 2 years, Run for the hills!!!

Lisiten Associates is the Number #1 Business Brokerage in the NY Tri-State area.  We have an unparalleled track record of closing deals  and they are completely verifiable. The service you deserve without the ridiculous fees. EXPERIENCE THE DIFFERENCE…