Today a new client (whose business I haven’t been actively marketing, yet) reported to me that another business broker / intermediary had been calling him repeatedly and leaving messages that he had a buyer looking for a business like my client’s. If you get calls like this, 99% of the time the business broker will not have a legitimate buyer who is specifically interested in your business.
However, since you never know, I called this business broker. After I asked him a few questions he admitted that he didn’t have any particular buyer in mind, and that, rather, there are institutional investors and strategic buyers in his database for which this business may be appropriate.
So, the reality is that this broker was hoping to get the business owner to list his business for sale with him, in anticipation of later finding a buyer. I’m sure that the business broker had a carefully worded, but misleading, script that caused the prospective seller to perceive that there is a particular buyer interested in his business such as: “I’m working with a buyer who is looking for businesses in your industry. The characteristics of your business appear to be a perfect fit for 100% of his acquisition criteria.” So, here’s the reality: all of us who professionally sell businesses have many buyers in our database and the specificity of acquisition criteria vary greatly from buyer to buyer. Right now I could pull dozens of buyers’ contact information from my database that have told me they are interested in businesses in a particular industry, but that give few other criteria then the general business size and a US location. Since I only represent companies with under $20 million in revenue, there’s a good chance that if your business is, for example, a manufacturing company, located in the US, with less than $20 million in revenue, then I have several buyers who would only have those three stated acquisition criteria.
Since most relevant information needed to make an acquisition decision about a small closely held company is private, most prospective buyers simply wouldn’t have enough information to form a strong opinion of whether they would want to acquire a company absent more information. So, the idea that there is a legitimate buyer out there that has a high probability of completing the deal based on a low level of quality information, is almost always more fiction than reality. Sure, if a broker, does his job correctly there may, in fact, be buyers in his database that will become interested in the particular business – but to imply that there are one or more buyers who have a high degree of interest in your specific business prior to reviewing basic information is very improbable.
Consequently, I find this practice to be unethical and misleading. A more honest way to do this would be for a business broker to simply say, “I have a variety of buyers in my database. Many have expressed interest in businesses that have characteristics similar to yours. If you are interested in selling your business, I believe some of the active buyers I know would be interested in your business. Furthermore, I know how to get businesses like yours the attention of other quality buyers. Would you like to meet to discuss how I may be of service?”
Integrity is of utmost importance in getting a business successfully sold. If a business broker starts out his relationship with you under false pretenses, how will he interact with buyers? Relying on trickery and clever, technically correct, but misleading representations is not a recipe for business sale success.
