When first-time business buyers search the market for new merger or acquisition opportunities, oftentimes, they only see a fraction of actual businesses listed. The reason behind this omission is due to a large number of well-known businesses residing solely in the “hidden market”; meaning they will not list their company “for sale” due to reasons of confidentiality and reputation. Many of these hidden opportunities are viable and often more valuable, but only M&A intermediaries and business brokers have access to these offerings.
Buy-side representation can be beneficial to business buyers because of the professional experience critical for a successful M&A deal. By engaging an intermediary in the search process and deal negotiation, the buyer opens a new door of opportunities that would not have otherwise have been available to him or her. Whether the buyer has never before purchased a business, or frequently invests in private equity, buy-side representation helps the M&A process to run smoothly and effectively. Unlike the buy-side engagements used in real estate, buy-side representation directed by M&A intermediaries and investment bankers exclusively represents the buyer’s part of the deal.
Business buyers may be concerned with the cost of buy-side representation, but in the end, many have found that the financial and intellectual advantage that an M&A intermediary gives them proves priceless.
1. The first step in buy-side representation is to evaluate the business buyer’s credentials. The intermediary will assess the buyer’s experience and qualifications to determine if he or she is a viable candidate for buying a business in the targeted industry.
2. Once the buyer’s credentials have been established, the intermediary will begin researching potential targets, creating a list of sellers to review with the buyer. The intermediary has a variety of resources on hand to coordinate appropriate sellers that correspond with the buyer’s criteria. The businesses for sale are sought out based on features such as cost, operations, location, and potential synergies. The intermediary will contact each business and filter out those inconsistent with the buyer’s benchmarks.
An intermediary has access to the hidden market as well as tools for evaluation that the buyer may not possess. While they can submit recommendations, the buyer ultimately chooses which company to target.
1. The intermediary may value target companies in order to find a fair deal for the buyer.
The intermediary will aid the buyer in securing financing for the deal. Due to extensive knowledge of M&A, the intermediary is able to produce a variety of financial suggestions and strategies.
2. All steps of the M&A process will be overseen and expedited by the intermediary.
The intermediary will write a Letter of Intent (LOI) or work with the buyer to write their own LOI. This official document includes a promise of exclusivity and basic price, and entails a background in M&A workings to complete.
The intermediary will then assist the buyer through the entire M&A process, utilizing professional knowledge to clarify variables, risks, and benefits involved with each decision. The intermediary facilitates the information exchange in due diligence and handles the closing process.
As the intermediary is not emotionally invested in the deal, statistics show that they generally negotiate a better price. Not only are intermediaries a neutral part of the deal, but they also possess years of professional experience in negotiation. Knowledge of both buying and selling makes for effective deal making.
Each buy-side client has a choice of three different fee structures with George & Company. Fee structures are established on a case-to-case basis, however, below is a basic outline of the three available options:
1. A la carte services are typically billed by the hour, which varies depending on the agent. These services include, but are not limited to: searches for available companies for sale, valuation services, preparing a letter of intent or offer, negotiating the deal, aiding in due diligence, finding appropriate funding sources, preparing a financing proposal, working with accountants, lawyers and other professionals, employment/consulting agreements, leasehold interests, working on problems that arise during pre-close, and closing the deal.
2. “Full service with search” requires a retainer which varies with the assignment but typically costs the buyer $5,000 plus a success fee of 4% of the acquisition price.
3. The third fee structure is a success fee of 25% of the savings from the offered price.
Buy-side representation is proven to be beneficial to first-time and experienced buyers alike. Skilled intermediaries and investment bankers can easily navigate the world of buying and selling businesses to bring you the best value.
If buy-side representation is a service that you are considering, please contact George & Company in confidence and we would be happy to assist you as well as provide a free consultation.