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April 30, 2024
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I’ve spoken to a few people doing this while looking at small businesses to buy. Most of their backgrounds are pretty random / blue collar. The most common prior experience may be commercial real estate brokerage?
In my (limited) experience many of the people who own small businesses that could sell for $1 - $5 million would prefer to work with someone hyper local who they know or have done business with before on some level. There is also a big cultural divide (think Main Street vs. Wall Street) and if someone showed up to the local trucking company talking about the billions in M&A deals they orchestrated it absolutely wouldn’t resonate.
Thanks for sharing your thoughts. All makes sense. Still seems to me that someone with good social awareness could make it happen. No need to stroll down onto Main St USA like a god descended to help mom and pop sell the old diner, you know? But yeah, I can definitely see the relationship part being a key issue. Just wondering if downplaying the Wall St crap and showing a genuine interest in them would help.
Absolutely. As long as you posses the EQ to find a way to connect to the seller you’d be fine. That said, I think selling these small businesses is a lot more like being a real estate broker than it is an investment banker.
Your previous legit M&A buyside contacts would probably laugh you out of the room if you brought them a business valued at a total of only 5MM, when their investments guidelines require at least 5MM in EBITA for example. With smaller engagements come smaller buyer pools which can make everything much harder.
Also a 300K fee isn't bad if you're doing it by yourself, but the downside is the sheer amount of work you'd need to do in order the run the entire process yourself and untangle the finances of a small company that could very well have the oddest accounting practices you've ever seen .
All fair points for sure.
Forgive me if this is a dumb question, but how much of the untangling falls directly on the broker? Seems like any business that's serious about selling would have to get their books sorted out and audited before diligence, but maybe I'm unfamiliar.
Definitely not always the case. I'm not a business broker but even in broker dealer covered, investment-banking sales, audited financials aren't a guarantee.
I run into brokers like this all day.
It is really unsexy work selling these small businesses, but there is a lot of money out there. A lot of the brokers don't really even have M&A experience either, most of the job seems like it's just connecting the buyers w/ the sellers.
Idk that sounds pretty sexy... Haha, you're right though. I mean I was talking to a guy whose PE firm buys small, local healthcare providers (e.g., optometry, dentistry, etc.). From the sounds of it, there is a small rotation of guys connecting the firm with the local practices and collecting fees. Just sounds like the money-to-effort ratio is ridiculously high. Perhaps my naïveté is showing though
I've been closely following this discussion and appreciate the insights shared here. In my experience, the key to successful business brokerage, especially for small businesses, lies in personalized and nuanced support. I've seen firsthand how tailored strategies and in-depth understanding of small business dynamics significantly enhance the sale process. There's a lot of value in partnering with a team that specializes in these areas and appreciates the unique challenges faced by small business owners. It's always rewarding to see a well-navigated sale that respects the owner's hard work and legacy.
I interned at a small shop that played in this space. Awesome experience and probably the best comp / WLB I’ve seen in the finance industry. At the end of the day, the business model works best if you’re a “good old boy” in a mid-size city. Lots of hunting trips, afternoon golf, football tailgates, coaching kids sports, etc.
Overview of the firm I interned with:
-only senior bankers. No one below MD is allowed in, and most of the seniors proved themselves at more reputable brands.
-most cutthroat example of eat what you kill in the industry. You are your own P&L.
-optically beneficial to market as an Investment Bank, not a business broker. These guys regularly cranked out business broker-sized transactions (~10 sub $10mm deals per year). The fees are ~5%, and they all have retainer fees to keep the lights on if things don’t close. Every other year they would land a ~$100mm EV business (usually in a specific industry), which always takes marketing precedent. A lot of the sub $10mm deals never even show up on their website / LinkedIn, because they think it could harm their chances of landing the occasional ~$100mm deal.
Takeaway:
In an industry full of false-humility, greedy assholes, and inflated egos, the senior bankers I’ve met at these super-LMM banks are generally the most down to earth folks in the industry. I have an open offer to return whenever I’d like to help institutionalize and grow the practice, and I love the idea of having workplace agency.
Can you share which firm this is? Or PM me the name please?
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