Sunday, March 17 was St. Patrick’s Day. It also was the day when the 2019 NCAA Men’s College Basketball tournament field was announced. 32 of the 68 tournament spots were automatically filled by teams that won their conference tournament. The remainder of the field, 36 schools, were selected by the tournament selection committee as at-large teams based on their resume of achievements over the course of the current college basketball season. The selection of a quality business broker by an entrepreneur to sell a privately held company or family business is also a situation where there can be an automatic selection or a selection from a group of professionals after scrutiny of resumes.
Automatic selections of business brokers traditionally occur in two scenarios. The first situation is when an entrepreneur has already had a positive experience with a professional intermediary or business brokerage firm and believes they have found the best option for that service. I have been a business broker for twenty-five years and personally facilitated over 300 transactions. In that time period, I have been honored to represent one technology industry entrepreneur four times in the sale of companies. This individual, who enjoys business creation more than personnel management, has come to me each time to facilitate a wealth creating exit strategy through the sale of a privately held company. A recent coffee meeting to discuss his current company has me believing he will return in 2020 or 2021 to do it again before he celebrates his 50th birthday. Some people are born entrepreneurs with future success written in the stars.
The greatest testimonial a “sell-side” business broker can receive that they facilitated a “win-win” transaction is when the buyer in the transaction returns to sell their business. One of my favorite stories to tell as a business broker is about a business I facilitated through four different ownerships. In the 1990’s I was approached by a husband & wife team that owned a successful business in Kirkland, Washington that wished to sell their company to facilitate retirement. A transaction was completed, and a successful transition of ownership facilitated. Unfortunately, several years after acquisition the new owner was in an automobile accident and needed to sell the business for health reasons. A stronger business than the one acquired was sold to an individual who desired to leave the corporate world and try her hand at entrepreneurship. Systems & processes in the company enhanced, this individual contacted me to sell the business, as it had become apparent that she preferred executive management for a publicly traded company over being the CEO of a privately held company. The equity value of the business increased from time of acquisition the business was sold to an industry insider who identified the value of the company’s market share and consistent profitability. I like this story for several reasons beyond as an illustration of automatic business broker selection. First, it conveys with a case example the spectrum of motivations that can result in an entrepreneur contacting IBA to sell their business. Second, it illustrates, that a good business can be successfully transitioned through generations of ownership without negative impact to customers, employees, or vendors. Finally, it shows that like other investment purchases (real estate, mutual funds, etc.) a privately held business has the ability to be bought & sold with a market value appropriate for its risk & assets multiple times over an extended period of time.
The second scenario where an automatic selection of a business broker can occur is when the intermediary is referred by a trusted professional adviser, friend, or family member of the entrepreneur. Every year IBA receives client referrals from accountants, attorneys, wealth advisers, bankers, and past clients who through interaction with our talented team of business brokers have identified that IBA has the knowledge, experience, and professional skill set to successfully serve their party’s needs at a high level. We recognize the service we provide the referred entrepreneur is a direct reflection on the referring party, so great efforts are made at IBA to provide consistent, quality representation and exceed expectations in terms of performance. This winter I completed a transaction involving a client referred by a well-regarded, senior wealth adviser in the Puget Sound area. I appreciated his post transaction comment that the business sold for more and quicker than he anticipated. I am confident the wealth adviser will enhance the value received for the business over time in this retirement sale. It is common for IBA to collaboratively work with wealth advisers to transition their client’s direct managed business assets to passively, managed investment assets that can be used to facilitate a comfortable retirement and/or passed onto heirs.
Automatic business broker selection is an efficient way to select professional representation. However, it is a selection process that requires knowledge & trust. It is common for entrepreneurs to intelligently evaluate options when making significant strategic business decisions. Selection of a business broker to sell a privately held company or family business is a significant business decision where it is prudent to research, assess, and consult with professional advisers prior to making a final choice for professional representation.
The following is a basic criterion of seven key elements for assessing professional intermediaries from an industry insider’s point of view:
- Knowledge – The selection of a professional adviser, whether it is an attorney, CPA, or business broker, should start with an assessment of their knowledge. One of the attributes being purchased when hiring a professional M&A intermediary is knowledge of all aspects of the sale process and the strategies that can be employed to achieve the best possible outcomes in negotiations. Knowledge can be possessed by an individual or a firm. No individual person can know everything. A large, established business brokerage firm offers its clients a deep pool of diverse knowledge and traditionally has internal education programs to insure its brokers stay current on relevant issues ranging from tax allocation to legal precedents to underwriting & lending policies impacting acquisition capital obtainment. IBA’s last educational session focused on remediation of environmental issues impacting the sale of industrial real estate. All IBA business brokers are also commercial real estate professionals, a level of dual knowledge not common in the mergers & acquisitions profession. It is an advantage to hire a business broker that can comprehensively professionally represent both the business and real estate, if a sale of both assets is desired simultaneously.
- Experience – There is no substitute for experience. No hospital would hire a medical school graduate to perform heart surgery prior to that individual gaining relevant field experience under the mentorship of more experienced surgeons. Professional representation of a business sale is a sophisticated, nuanced process requiring completion of numerous, supervised transactions to obtain a satisfactory level of quality as a business brokerage professional. Superior performance requires a greater body of independent achievement in a diverse set of circumstances. It is prudent for an entrepreneur to vet the experience of a business broker and their firm prior to selecting them for representation. IBA is recognized as one of the most knowledgeable & experienced business brokerage firms in the United States. This experience & knowledge was gained through successfully facilitating over 4000 transactions since 1975. It is also the reason IBA is a desired guest speaker by the government, banks, trade associations, and community groups on transitioning ownership of privately held companies and family owned businesses. The following section of our website highlights upcoming speaking engagements by IBA professionals: ibainc.com/seminars-and-events/ Most IBA events are free to the public with enrollment available through our website.
- Professional Skill Set – Mergers & acquisitions requires a diverse, specialized skill set. The best business brokers have the ability to wear an accountant’s visor to value a business; a seasoned sales professional’s ability to create a marketplace, persuasively convey the positive attributes of a product, and justify its market value; a professional negotiator’s ability to get intelligent, thoughtful parties to “Yes” with divergent interests; and a skilled administrator’s ability to facilitate progress through necessary steps & processes by accountants, lawyers, banks and/or investors. It is strongly recommended that any business broker being interviewed be asked about their most recent & difficult transactions. Questions should also be asked about their relevant experience selling similar companies in the same industry. The skill set and knowledge needed to sell a technology company with significant intangible assets is very different than the skill set and knowledge needed to sell a restaurant and facilitate a liquor license process for a buyer.
- Market Reputation – The road to business sale involves collaboration and engagement with other professionals. Established business brokerage firms have established history with the legal & accounting community. Entrepreneurs are encouraged to ask their CPA and/or attorney for recommendations and referrals of business brokers as a starting point for their interview process. In addition, the firm’s website, Google Reviews, Yelp Reviews, LinkedIn, Facebook, etc. offer an entrepreneur an easily accessible method of assessing a business brokerage firm’s market reputation. An insider tip when reviewing reviews online is to look at when they were left, dated reviews from prior years convey two valuable pieces of information. On a positive level, they show longevity in quality performance in the marketplace. On a negative level, if they are antiquated, they may show that activity at a company has diminished or key personnel have retired or left the firm.
- Resources – One of the common jobs of a business broker is to help the buyer locate the funds necessary to complete the acquisition. Business loan approval & underwriting policies can vary greatly in the lending community. It is prudent for an entrepreneur to engage an experienced, knowledgeable business broker with a high skill set that has a network of banking professionals to access when acquisition capital is sought for a transaction. No transaction is ever completed without appropriate buyer funds regardless of the goodwill and intentions of the parties. It is common at IBA to find buyer acquisition financing when they have struck out seeking funding in their own network. A quality business broker can also be a great source for referrals of business attorneys, accountants, wealth advisers, appraisers, 1031 exchange facilitators, and a spectrum of other specialized professionals. Success in the NCAA Basketball Tournament often depends on the depth of talent on a team’s bench. The same can be true in a business purchase & sale transaction.
- Likeability & Integrity – The relationship between a business broker and their client is commonly short (3 – 9 months at IBA), but close with frequent communication. As a general rule, people do business with people they like & trust. If initial communication with a business broker is not collaborative, informative, and positive then an alternative professional representative should be interviewed for the position.
- Broker Compensation – There are two dominant business models in business brokerage. One business model, the compensation model employed by IBA, is a real estate business model where the business broker is paid 100% on performance at completion of the transaction when their client is paid. The other business model involves the business broker being paid upfront fees & retainers. In theory, both business models end with approximately the same level of compensation for the broker after a successful sale. However, it is also true that many businesses represented for sale by business brokers do not sell due to incorrect pricing; the business broker’s inability to create a marketplace for the company filled with interested parties; an intermediary’s inability to get interested parties to reach across the table and shake hands on a deal; and/or the inability to locate the funds necessary to complete the transaction. Business brokerage is a “black & white” profession with a clear objective, sell businesses. It is my professional opinion that the “best of the best” in business brokerage are paid 100% on performance. Any salesperson that seeks a retainer generally does not have confidence in their abilities as a salesperson.
The first games in this year’s NCAA Basketball Tournament take place on Tuesday, March 19. On that date, automatic & at-large selection teams become equal and history has no impact on future success. Conventional wisdom is that Duke has the best opportunity to “cut down the nets” at this year’s Final Four based on their talent & achievement this season. Local favorite, Gonzaga, is seen as the dominant team from the West Coast in the tournament and also has high aspirations. PAC-12 Tournament Champion, Oregon, has won eight games in a row and is seen as a team on the rise. All have the talent to achieve results on the basketball court. Similarly, there is not only one business broker that has the ability to sell a specific company. However, each business broker has a level of knowledge, experience, and professional skill set that is unique. It is my hope whether you are filling out a March Madness bracket or picking a quality business broker to sell your business that you take the time and employ the acumen necessary to set yourself up for future success.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.