What fees did you pay for selling your business?

[Rob1985]

I'm in the process of getting my business ready to sell. I've been speaking to corporate finance teams in M&A firms and accountants.

They all seem to want a lot of money for helping to sell my business. Even though, I run a very specialist, niche ecommerce business and they won't be doing the marketing, I'll be doing that myself and possibly using a separate ecommerce broker if needed.

Without them doing the marketing, I'm still getting quotes for £75 - £250k

My business turns over around £6m but it is not that complex.

What do people who have a smaller business do? If you've got a business that turns over £400k, you don't pay £150k in fees.

It seems like these corporate finance teams price the job based on the size of your business, not the amount of work that they are actually doing.

 

[WaveJumper]

Think I will leave this one for @Clinton

 

[Clinton]

Thanks @WaveJumper .

I published a whitepaper recently on fees in the industry. It's a free download and available here (and you don't even need to provide an email address or anything to get it). It explains in details fees and fee structures in the industry all the way from business transfer agents to boutique investment banks.

Without them doing the marketing, I'm still getting quotes for £75 - £250k

This suggests very little understanding of what corporate finance firms do to sell lower mid-market businesses like yours. If I were a corporate finance firm and you approached me with this kind of proposal - ie. where you do what you call the "marketing" - I wouldn't touch you with a barge pole.

You don't find buyers for a business like yours by doing "marketing"! You do it primarily via 2 means - a) publishing the opportunity on M&A databases to invite expressions of interest and b) research.

The research is a hugely time consuming and expensive job and takes a team of people buying in data, sorting that data to about a couple of hundred companies who are a good match, and then individually approaching those companies to persuade them to sit down and talk. Most of these firms are not actively looking for an acquisition. You have to prepare merger model spreadsheets and projections and what not to persuade them of the synergystic advantages of a merger or acquisition. You prepare all that paperwork on a case-by-case basis. Lots of work!

Despite the huge amount of work in the above, finding of buyers is less than 10% of the work involved! And it's 10% if the CF company have a proper research team and do a decent job on the research! Otherwise it's about 1% or 2%.

If you know people who could be potential buyers, you pass those names to the corporate finance firm and you step back. That's it. It'll be up to them to generate better qualified and more motivated buyers and to build competitive tension. What you've done in the process is minimal, largely irrelevant and one that you're giving yourself far too much credit for. Even if one of the parties you forwarded ends up buying the business, it's not thanks to you. The CF firm would have put in a mega ton of effort to take that interested party all the way to a deal completion and forced the price up through getting competitive offers.

What do people who have a smaller business do? If you've got a business that turns over £400k, you don't pay £150k in fees.

If you have a business turning over £400K, you go to a business broker or business transfer agent (and that's a very dodgy market with a few good players and many, many bad ones). No corporate finance firm is going to get involved (unless you've got some millions in assets or something). Most good corporate finance firms turn down my clients who are making £500K in net profit! They would laugh you out of the room if you went to them with a £400K turnover business.

I normally advise businesses of size £5m to £50m in turnover and I give them an initial free call. You fall in that bracket but I'm fully booked up at present, unfortunately, so won't offer a free call at this time but I hope this post helps. All the best.

 

[Rob1985]

Thanks @WaveJumper .

I published a whitepaper recently on fees in the industry. It's a free download and available here (and you don't even need to provide an email address or anything to get it). It explains in details fees and fee structures in the industry all the way from business transfer agents to boutique investment banks.



This suggests very little understanding of what corporate finance firms do to sell lower mid-market businesses like yours. If I were a corporate finance firm and you approached me with this kind of proposal - ie. where you do what you call the "marketing" - I wouldn't touch you with a barge pole.

You don't find buyers for a business like yours by doing "marketing"! You do it primarily via 2 means - a) publishing the opportunity on M&A databases to invite expressions of interest and b) research.

The research is a hugely time consuming and expensive job and takes a team of people buying in data, sorting that data to about a couple of hundred companies who are a good match, and then individually approaching those companies to persuade them to sit down and talk. Most of these firms are not actively looking for an acquisition. You have to prepare merger model spreadsheets and projections and what not to persuade them of the synergystic advantages of a merger or acquisition. You prepare all that paperwork on a case-by-case basis. Lots of work!

Despite the huge amount of work in the above, finding of buyers is less than 10% of the work involved! And it's 10% if the CF company have a proper research team and do a decent job on the research! Otherwise it's about 1% or 2%.

If you know people who could be potential buyers, you pass those names to the corporate finance firm and you step back. That's it. It'll be up to them to generate better qualified and more motivated buyers and to build competitive tension. What you've done in the process is minimal, largely irrelevant and one that you're giving yourself far too much credit for. Even if one of the parties you forwarded ends up buying the business, it's not thanks to you. The CF firm would have put in a mega ton of effort to take that interested party all the way to a deal completion and forced the price up through getting competitive offers.



If you have a business turning over £400K, you go to a business broker or business transfer agent (and that's a very dodgy market with a few good players and many, many bad ones). No corporate finance firm is going to get involved (unless you've got some millions in assets or something). Most good corporate finance firms turn down my clients who are making £500K in net profit! They would laugh you out of the room if you went to them with a £400K turnover business.

I normally advise businesses of size £5m to £50m in turnover and I give them an initial free call. You fall in that bracket but I'm fully booked up at present, unfortunately, so won't offer a free call at this time but I hope this post helps. All the best.

Thanks for the response.

Marketing is an broad term, it covers the two methods that you mentioned.

What happens if an M&A firm doesn't sell your business?

Our main competitor had their business with an M&A firm for more than year, in the end, the owner had to go out and find the buyer. He managed to negotiate their rate down because of it.

My corporate finance lawyer told me recently that they were helping a client that was stuck in a contract with an M&A firm for 2 years, after nearly a year they hadn't sold the business, they'd moved on to more interesting work. A bit like an estate agent does after they give your house an initial push and it doesn't sell. They work on things that are going to make them more money.

The M&A firms can talk the talk but it's not all that it seems. If they don't sell your business, you could be stuck with them, even if you move on to another firm, you still may have to give the original firm a success fee.

 

[cjd]

I think the core question is this

It seems like these corporate finance teams price the job based on the size of your business, not the amount of work that they are actually doing.

I'd like to see the justification for the percentage fee mechanism.

 

[Clinton]

If those owners who employed M&A firms paid a lot of money and didn't successfully sell their businesses, they are probably not very bright. They should have used my services to find them the right firm or at least read some of the articles I've written on how to go about interviewing and filtering candidate firms.

Whenever I've spoken with a lower mid-cap firm that was disatisfied with the M&A intermediary, it was, 100% of the time, a client that didn't do their homework properly prior to the signing the engagement letter.

I find CF firms for businesses - I discuss the clients' exits goals, their time frames, their availability to engage with the process etc etc and then find them the best sector specialist (or, in some cases the appropriate sector agnostic intermediary based on pre-agreed criteria) - and I do this for a living. I have massive information on all the CF firms, I know the industry inside out, I have a lot of experience doing this and it still takes me 100 hours of effort, on average, to place a client!

I've seen companies spend more time and money hiring a £20K IT guy than they spent finding the right advisory firm to sell what's often their largest asset. Some spent the equivalent of less than a day or two on the whole process of choosing an intermediary instead of spending several WEEKS doing their research. Most haven't interviewed more than 2 or 3 firms before jumping in. Absolutely bonkers!

What happens if an M&A firm doesn't sell your business?

If they don't sell your business then your business is still your business. I don't understand the question.

You risk 30 grand or 50 grand on the process and you take a risk. That's how this game works. Any good M&A firm is taking an equivalent risk as the £50K retainer they charged you covers only about 50% of their costs to run the process. Yes, that's how much it costs to run the process. Anyone who doesn't understand that doesn't really understand what a CF firms does differently to an estate agency or business broker.

CF firms are very competitive. We have hundreds of them in the UK. Do you think every single one is overcharging? If so, start your own CF firm, charge 50% of what everyone else is charging ...and go make yourself a killing.

Let me know when your new firm has successfully sold a few lower mid-cap businesses and we can have a chat to discuss me sending you some new clients (at completely no cost to you for the leads).

 

[Rob1985]

I think the core question is this



I'd like to see the justification for the percentage fee mechanism.

I have asked them this. The explanation that I get is that bigger business is more complex and will require more of their time.

Of course, in todays online businesses, we know that this isn't true and it's a weak reason to charge more.

I've seen ecommerce businesses that have one product, selling through one sales channel, one website, in one country, run by a very small number of staff and they are turning over tens of millions per year.
On the other end, I've seen ecommerce businesses that are selling hundreds of products, through various sales channels, in multiple countries, with a larger team and they are only turning over a few million a year.

 

[Annoying Donkey]

I'd like to see the justification for the percentage fee mechanism.

One reason is that a fixed fee limits the amount of time you can spend on something and still remain profitable.
Another reason, a percentage gives an incentive to achieve a higher price. A good broker would likely make you more than they charge...

 

[Porky]

@Rob1985

Others may disagree with me but In my opinion, if you are using the big accountancy firms like Grant Thornton, PWC, Deloitte, KPMG etc etc all you are really getting is their contacts. You are being represented by a blue chip respected firm and they are more likely to know of PE firms or Equity backed businesses that are looking for acquisitions like yours and introduce you. These firms don't want to get out of bed for less than quarter of a mil and half the time you will be dealing with the tea boy.

But equally you don't want to be going with some two bit outfit that will do a scatter gun approach to all and sundry, you just need connecting with the right party.

When it comes to negotiations you are better with a decent broker than doing it yourself. Its worse than selling your house frankly.

On balance my view is that going with one of the big five yes will cost you big change but will likely get you the result you want and ideally increase your exit value by more than their fees if the job is done correctly.

Ultimately you are just going to have to suck this one up I'm afraid. It is what it is and i totally agree with you that the fees are a bit of a pee take in relation to what they actually do but that's just how it is.

Good luck

 

[Mark T Jones]

You don't go to a Bentley specialist to service your moped - they won't have the right tools, they won't really understand it but they will still charge you for their Bentley skills.

You aren't in corporate M & A league - so will be paying for skills you don't need and they won't take you seriously - you are in business broker league, but be sure to choose a good one.

How do they justify their fees? Easy. They are in a competitive market. They tell you their fees, you decide whether to use them. This is a business forum, after all

 

[pentel]

My business turns over around £6m but it is not that complex.

I am finding it very difficult to understand the size of this business, and hence where the OP should be looking for a route to exit.

A £6m turnover business with a 20% net profit is very different to a £6m turnover business with a 1% net profit.

 

[Mark T Jones]

I am finding it very difficult to understand the size of this business, and hence where the OP should be looking for a route to exit.

A £6m turnover business with a 20% net profit is very different to a £6m turnover business with a 1% net profit.

If it helps, these people apparently turned over £3 mil last year and appear to have made a net loss. https://www.ukbusinessforums.co.uk/...sk-me-any-questions-youd-like-to-know.422341/

but you are correct, turnover isn't a useful stand-alone metric.

 

[MBE2017]

Why argue regarding the fees?

Approach other companies and see if the rate is fair in your eyes. I will freely admit I have no clue on the fees or work involved, but in most industries you charge for the value given, not necessarily the costs involved.

Since the OP believes he will be doing the marketing and possibly introducing the buyer, the fees seem very high because he doesn’t see the value.

Best of luck with the sale, whichever way you go.

 

[Clinton]

I have asked them this. The explanation that I get is that bigger business is more complex and will require more of their time.

That's a bullsh*t line and no CF firm would try that line with me; I'd put them in their place very quickly! You've obviously got a dud one there. You're correct, of course, that larger size does not automatically mean larger complexity.

Anyway...

@Rob1985, if you're that dubious about CF firms, why bother with them?

Go sign up with a business broker. Someone like Nationwide won't even charge you a fee, they'll take you on for free. What a great deal! Sign up with them before they change their minds.

@Rob1985

Others may disagree with me but In my opinion, if you are using the big accountancy firms like Grant Thornton, PWC, Deloitte, KPMG etc etc all you are really getting is their contacts.

That is completely wrong! Let's take your first example, Grant Thornton. I know people at the highest level in GT and speak / meet with them many times a year. One or two of the partners have even written me recommendations in LinkedIn. Over the years, GT have provided me extensive information on past deals they've done, multiples achieved, source of their buyer etc, The have to disclose this to me, in confidence of course, if they want me to send my client to them.

I know of dozens of businesses that have sold through GT. Not one of those was sold to a "contact" of theirs. If anyone is signing up with a big firm for their "contacts", dont. You're wasting your money. ANY CF can reach the same buyers as GT can. Even I can reach those buyers.

You don't go to the big names for their "contacts". You go for their expertise & ability to advise through the whole transction, to handle complex questions from buyers, to keep the transaction on course, to deal with the numerous bumps along the way, to manage the awkwardness of lawyers / third party finance companies and all kinds of other characters and to get the deal to completion! There is enormous skill involved in that juggling. The problem is that most punters don't realise how complex buying or selling a business is and how much advisory assistance they need if they want to do a proper job of selling the business.

@Rob1985

...they are more likely to know of PE firms or Equity backed businesses that are looking for acquisitions like yours and introduce you.

No, they're not. I can access, directly, the same PE firms that GT can access. In any case, P/E firms are the wrong type of buyer for most businesses. P/E deals suit only a small minority of businesses that go to market.

 

[The Byre]

It seems like these corporate finance teams price the job based on the size of your business, not the amount of work that they are actually doing.

No. It's the work involved.

Imagine you are a pianist and you want to record some piece that will take you four hours to play a few times and about eight hours for a Tonmeister to piece together into one flowing performance. Instead of getting a friend to record it on a laptop and then piece it together in Reaper or CuBase, you hire Abbey Road. £150 to get the piano tuned, £6k for the studio hire, £1k for the staff and recording, £2k for the Tonmeister.

People balk at giving someone £500 to use a laptop but willingly hand over nearly £10k for a half-day studio time. Except that Abbey do not really want you there unless they have a half-day spare. They want big film score gigs that block-in the old calendar - plus some juicy corporate events!

The result (laptop v. The Abbey) will be more or less the same! But getting to that point where you can make them the same requires experience and knowledge!

Now, this is where I deviate from @Clinton's views - as you are in a niche market, you almost certainly already know your target buyer! But where we agree is that you still need adult supervision!

When I sold my company nearly 25 years ago, I had adult supervision. Without that, I would have been taken to the cleaners! I sold it to my largest customer who initially just wanted to buy a list of my contacts - for a song! Instead, I restructured the company and offered them that and got some real money.

But here is a story that happened to a guy I know - another old fart like me! He had an 80-man engineering company making pro-audio equipment like mixing desks that sold for between £100k and £300k, plus live sound deks and stuff like that. He got an offer from a very large US international that was swallowing up pro-audio companies left, right and centre.

Previous (far larger) acquisitions had been done with an outside M&A team, but for such a small company, the Americans decided to go with an in-house team.

After some negotiating, a price and payment schedule, subject to due diligence, was agreed upon. The US company was very happy - but my friend was even happier! And here is the reason why -

Unlike US engineering companies, UK companies very often license their designs. These licenses come with covenants such as becoming invalid if the company changes ownership - as was the case here! But the US international had clever MBAs from Ivy League colleges - they knew it all! They crawled over everything and did their due diligence - but missed two contracts.

One was with the owner, my friend. The other was with a very famous engineer, regarded today as the father of modern analogue pro-audio design. Both contracts had a time-out five-year clause if ownership changed. And all those clever MBAs missed those contracts totally. "So much for due diligence!" said my friend gleefully, as he popped open the champagne and looked forward to an early retirement and the ability to license his designs elsewhere.

The M&A staff may have been clever lads with clever degrees, but they didn't know what they didn't know. Rumsfeld's "Unknown Unknowns!" With one year to go, both contracts were triggered and the company had to cease trading. The very act of buying the company (without adult supervision) had made it worthless!

 

[Clinton]

Now, this is where I deviate from @Clinton's views - as you are in a niche market, you almost certainly already know your target buyer! But where we agree is that you still need adult supervision!

I can see where you're going with this but it's almost certainly the case that the OP does not know the target buyer! He may know one or two people he thinks will be good buyers. That's it.

There are two types of buyers - financial and trade. Financial buyers like P/E firms, family offices etc are unlikely to be "known" to the vendor. He can reach them, yes, but he likely doesn't already know them (or even know of them!). Trade buyers are more interesting. They can generally pay much more if, if, if you find the right party.

And, no, it's not always someone in exactly the same line of business. It could be someone in their supply chain, a large B&M operation that's looking for an entry into the online marketplace, and very often a business in a related industry that is looking to spread their risk or in a position to exploit significant synergies. This is where the expertise and knowledge of the CF firm makes a big difference. They will put together parties from a range of such backgrounds and have exploratory conversations.

Marks & Spencers, a largely high street operation, bought a 50% share in Ocado for £1.5b to get entry into the online marketplace for groceries. Moving Intelligence of Holland (owned by Volpi, a German P/E firm) bought Phantom Ltd of the UK (a client of mine) two years ago in a large multi-million pound deal because Phantom was doing with caravans in the UK what MI was doing with corporate fleets in Holland. MI had a unique hardware advantages in their industry while Phantom had unique software and other advantages that MI didn't have. The synergy was off the scale At the start of the process Phantom didn't dream that their eventual buyer would be a fleet supplier in Holland.

I know an Italian boutique investment bank called Klecha & Co who specialise in tech businesses. They kindly invited me a couple of years ago for their big 10th anniversary bash in Milan. They have a UK based operation and I know of tech businesses they've sold here. But they are just one of dozens of M&A, CF, TA (transaction advisory) and SC (strategy consultants) in the UK selling businesses in the TMT sector. Take a tech business to one of these firms and you'll be stunned by how well they understand the industry, what metrics are important, how high-growth tech businesses are valued differently, what buttons to press with acquisitive firms interested in a tech buy etc. But, importantly, they have insights and gut feels into what firms would be good synergistic matches.

 

[Ozzy]

I have nothing to add on the technicalities already covered above, but I will share my opinion based on experience of selling a handful of small businesses over the years.
The agent (boutique in my case) is in addition to the reasons covered above also vitally important in distancing the business owner from the trenches, the unnecessary part of negotiations and managing the process. Especially if the business owner does end up knowing the buyers, as I have done on more than one occasion. Keeps is clean and professional, especially during DD.
I'd never do a large asset sale or a business sale without one.

 

[The Byre]

vitally important in distancing the business owner from the trenches, the unnecessary part of negotiations and managing the process. Especially if the business owner does end up knowing the buyers, as I have done on more than one occasion. Keeps is clean and professional, especially during DD.
I'd never do a large asset sale or a business sale without one.

More important than people realise! It is also the reason actors have agents. Without one, the actor or business owner gets emotionally involved and feels that if they play hardball, they might lose the deal or the gig. An agent may cost 10-15 or 20% but more than make up for it by pointing to strengths that the person(s) involved would not bring to the table.

 

[Clinton]

An agent may cost 10-15 or 20% but more than make up for it by pointing to strengths that the person(s) involved would not bring to the table.

In my first post I provided a link to fees charged in the industry, but a summary would be that lower mid-cap businesses pay £30K - £60K in retainers and about 2%-3.5% in success fees (though I've negotiated at little as 0.75% in success fees for a recent £40m client of mine). Business brokers charge under £5K in retainers and 5% - 12% in success fees (higher percentages for smaller businesses). Website brokers - firms that claim to specialise in selling online businesses - sometimes ask for silly amounts like 15% or 20%, but they tend to not take a retainer.

 

[WaveJumper]

In my first post I provided a link to fees charged in the industry, but a summary would be that lower mid-cap businesses pay £30K - £60K in retainers and about 2%-3.5% in success fees (though I've negotiated at little as 0.75% in success fees for a recent £40m client of mine). Business brokers charge under £5K in retainers and 5% - 12% in success fees (higher percentages for smaller businesses). Website brokers - firms that claim to specialise in selling online businesses - sometimes ask for silly amounts like 15% or 20%, but they tend to not take a retainer.

The link is an interesting read

 

[Rob1985]

Just a quick update this on this. I have managed to get to a good place that I'm happy with.

I've squeezed an M&A firm and corporate finance team at my accountants. They will both do everything apart from the research, marketing, finding buyers etc for £75 - 125k. They will charge me per block of work, I'll get a more accurate cost as we go through each stage of the process. If we get a very interested party that just wants to push the sale through, it will be at the lower end, if we get multiple offers or overseas interest, it will be at the higher end.

I've got a list of people in my network that run similar business that I'm going to approach. I've also got an ecommerce broker that understands our business and has sold one of our brands before, he is willing to work on 1% fee for finding and introducing serious buyers to us.

It's a great hybrid option which will give me the best chance of finding someone. It's taken me 3 months to get to this point, I've spoken to around 10 different M&A firms, accountants, portfolio Finance Directors with M&A experience and other business owners that have sold.

Some of those M&A firms specialised in ecommerce but didn't understand how my business worked. Ecommerce is a vast space, there's many different ways that they operate.

The one M&A firm that I spoke to who had sold our biggest competitor last year, refused to take us on because of the problems that they had trying to sell that. It was actually the owner of the business who had to find the buyer because the firm was unable to.

I would say be careful of these M&A firms. At the end of the day, they are sales people. They will talk the talk, say that they can sell your business, some of them will tell you that it's worth a higher multiple than it actually is and happily take your upfront free and lock you in for many months or years. Even if you go to another firm or agent that can actually find a buyer, you may still have to give the original firm a fee.

Most of them are not willing to take on a job for less than £250k and many of them only want to do the full service. If you shop around, you can squeeze them and get a better deal. That's if you have to use an M&A firm, you may be better with just using a medium size accountancy firm that has some corporate finance resource, ask them to give you a breakdown of the work that they will do and the cost for each part.

A M&A firm isn't the right fit for every business. If you've got a very specialised business like mine that is only going to be sold to trade and not private equity, you may be better with a solution that I've got, a CF firm and a specialist agent / broker that works in your sector.

Having said that about M&A firms, I do see where they could add serious value if you are selling a more mainstream business that will attract a lot of attention from trade and private equity. I may use their full service in the future for another business that I have.

 

[Clinton]

It's a great hybrid option ...

I think it's a horrible, convoluted option that won't get you the best deal. But, hey, if you're happy with it, that's all that matters.

At the end of the day, they are sales people.

LOL, okay, whatever. All the best.

 

[Porky]

Hi @Rob1985

I can see how you arrived at this decision but not sure I totally agree with the logic but respect it’s your decision and yours alone to make.

I’m a great believer in the principle that “You don’t know what you don’t know”. You are not an experienced M&A broker yourself yet you make many assumptions regarding the process and can’t foresee what issues you might run into during the various stages.

Obviously, I can’t know your specific business, if you were selling say an insurance brokers or accountancy firm or a cafe or engineering business you could probably look at the market, see the multiples being paid and estimate within close range where your own exit value is. Hence negotiations would be fairly standard and your hybrid solution could work because that’s what a buyer will pay and that’s it and your appointed firm will support the closing.

However, you are not in that situation, your ideal buyer could be outside the UK, you don’t know who they are, there could be a PE backed business out there that would like you in their chain? there could be vast differences in what one buyer would agree to over another. Your M&A broker has a fixed fee so has no vested interest in securing the best price?

My view in your case is that whilst a quality firm with success fees may charge you £250k yet your hybrid solution could come in at half that using your £75k-£125k plus 1% to the second firm scenario, a decent broker worth their Salt could potentially secure you a higher sale price hence you being better off.

Certainly interested in how you get on. Don’t get me wrong I completely get why you feel the fees are excessive, having recently paid KPMG significantly higher fees on a recent deal, I totally get it however, I wouldn’t change anything, the value add proved to be significantly higher than the fees so not complaining and selling any business is stressful at the best of times.

Not sure a fragment approach is a good idea but time will tell. All the very best of luck to you all the same. May Lady Luck be with you.

Pork’s

 

[cjd]

Anyone that charges a percentage rather than a rate for the work done is in (pyramid) sales. It's the reason that the finance industry fails spectacularly every 10 to 20 years. It's a house of cards that works mostly for the middlemen. You're dealing with estate agents with brains - a really toxic combination, but we're stuck with it. There are alternatives but they're hard to find because no-one wants to break the model - it's too lucrative.

 

[Rob1985]

Hi @Rob1985

I can see how you arrived at this decision but not sure I totally agree with the logic but respect it’s your decision and yours alone to make.

I’m a great believer in the principle that “You don’t know what you don’t know”. You are not an experienced M&A broker yourself yet you make many assumptions regarding the process and can’t foresee what issues you might run into during the various stages.

Obviously, I can’t know your specific business, if you were selling say an insurance brokers or accountancy firm or a cafe or engineering business you could probably look at the market, see the multiples being paid and estimate within close range where your own exit value is. Hence negotiations would be fairly standard and your hybrid solution could work because that’s what a buyer will pay and that’s it and your appointed firm will support the closing.

However, you are not in that situation, your ideal buyer could be outside the UK, you don’t know who they are, there could be a PE backed business out there that would like you in their chain? there could be vast differences in what one buyer would agree to over another. Your M&A broker has a fixed fee so has no vested interest in securing the best price?

My view in your case is that whilst a quality firm with success fees may charge you £250k yet your hybrid solution could come in at half that using your £75k-£125k plus 1% to the second firm scenario, a decent broker worth their Salt could potentially secure you a higher sale price hence you being better off.

Certainly interested in how you get on. Don’t get me wrong I completely get why you feel the fees are excessive, having recently paid KPMG significantly higher fees on a recent deal, I totally get it however, I wouldn’t change anything, the value add proved to be significantly higher than the fees so not complaining and selling any business is stressful at the best of times.

Not sure a fragment approach is a good idea but time will tell. All the very best of luck to you all the same. May Lady Luck be with you.

Pork’s

The only M&A firm that I have spoken to that have actually sold a business like mine, wouldn't take ours on because of the difficulty that they had with selling it. I know the owner of that business and I chatted with the M&A firm, they had loads of conversations with possible buyers but none of them could understand how the business worked and how they could grow it. They were talking to the wrong people.

The CF firm that is part of my accountants that I'm going with has actually said that he thinks it's a good solution. He wouldn't have a clue as to who to contact for a business like mine, he doesn't want to waste the time trying to find people.

The M&A firms who were willing to take it on had no clue about my business and had never sold anything similar. Even the ecommerce M&A firms that I spoke to.

All the M&A firms that I spoke to have told me that this will be a trade sale, PE wouldn't be interested in this type of business.

With the CF firm cost and if I use the broker, it will come out at about £250k. The big difference with this solution is that we can reach a lot more of the right people who are working in the same space, an M&A firm won't be able to do this.

Myself and the broker will have the initial conversations about the business to potential buyers. When we've got someone who is seriously interested and wants detailed information and to make an offer, they'll be passed on to the CF firm, they'll take it from there.

 

[Clinton]

I think you suffer a bit from the "my business is so specialised that very few can understand it" syndrome. That's not a rare disease, I see it quite often. It causes me to roll my eyes just like investors and VCs do when a startup says that they have no competitors. Everybody has competitors.

Your comments about M&A firms who had no clue about your business - and only one having sold a business like yours - simply tells me you didn't spend enough time researching M&A firms! I bet I could find a dozen who have a deep understanding of your business model and who've sold countless businesses like yours. The sticking point with yours may be an excessive reliance on the owner/s (which, I'm guessing, is partly why you've been advised that P/E firms wouldn't be interested. P/E firms need to see full and competent second tier management teams in place. They want businesses that are in no way dependent on the owner/s.)

But I do get the problem that it's not easy to find sector specialist firms. I've written about sector specialism here if anyone's interested. It's incredibly difficult to put together a list of specialists in a particular sector. For example, my database has two dozen UK specialists who sell accountancy practices. I'm not talking about sector agnostic players who'll take on businesses in any sector. I'm talking about those selling just accountancy practices and nothing else. Unfortunately, though, you could spend all week in Google and not get together a list of even half of them!

He wouldn't have a clue as to who to contact for a business like mine, he doesn't want to waste the time trying to find people.

Either you're trying to big up the uniqueness of your business or you've got a crap CF firm there. It sounds like he's telling you what he thinks you want to hear, just like some brokers give valuations that they think the vendor would like to hear. I've been through tons of deals in my time. There is not a single case, including with tech businesses, where the owners could have done a better job than the CF firm of finding potential buyers.

And there is no respectable CF firm that would tell the client that he can do a better job of finding buyers than they could do.

The only situations where the owner may be better positioned to find buyers is where he's painted himself into a corner, built a business heavily reliant on his personal skills and he needs a buyer with those specific skills to replace him when he leaves. That may be where you are. My advice to businesses like that is that they will be limited to just those buyers who understand their particular business, and that'll be a small fraction of the huge buyer pool out there.

The severely limited number of buyers will have a significant impact on price. Buyers are smart people. They will recognise this vulnerability and this will be reflected in their offers.

 

[N-UPS]

I read to page 10 and then skimmed the rest

The skin in the game argument is strong and logical.



Something not covered is how the retainer could be paid and the broker/advisor then grossly underperform with only cost to the business owner. They could do a bad job / no work and say that it was not possible to sell the business.

The Retainer is giving the broker/advisor some of the seller's skin. Does the seller get some of the broker/agent skin?


An example from your text that would hint that the firms need to be watched is in the fees on cash at bank, which seems tenuous and at odds with being on your side.



I guess this is where you come in. You've found a good spot.

time to get dr. Seuss' cat to write a fee report on Clinton!

 

[Clinton]

An example from your text that would hint that the firms need to be watched is in the fees on cash at bank, which seems tenuous and at odds with being on your side.

I'm not sure I understand what you're getting at. If you're talking about the broker's standard commission rate applying to all assets included in the sale, including cash at bank, that's a deep subject in itself and beyond the scope of a forum reply. But, yes, this is one of the items I negotiate with corporate finance firms and investment banks when placing a client with them.

time to get dr. Seuss' cat to write a fee report on Clinton!

Er, I'm not a business broker or corporate finance firm so I don't have the "retainer + success fee" model. My fees are a lot worse than that! My clients pay a large sum in advance. I provide advice (or do some work and present a report). The client goes away. End of story.

You can get Dr Seuss to write that up if you want

They could do a bad job / no work and say that it was not possible to sell the business.

Yes

That's why one needs to do a LOT of research and be very, very cautious about who they appoint. If I had a quid for everyone who jumped into bed with the first character who gave them a flattering valuation, I'd be richer than Musk, Bezos and Buffet put together.

 

[The Byre]

The M&A firms who were willing to take it on had no clue about my business and had never sold anything similar. Even the ecommerce M&A firms that I spoke to.

All the M&A firms that I spoke to have told me that this will be a trade sale, PE wouldn't be interested in this type of business.

That all sounds like euphemisms for "Please go away!"

Now, why would any M&A specialist turn away a £6m TO company owner?

Well, let's look at a typical bog-standard business that we all can get our heads around - an auto-repair shop. And I am looking at a very specific garage that I know and understand. The owner and master mechanic has a 4-bay shop plus MOT station, five mechanics and two apprentices. Each bay and the MOT station has a turnover target of £1,500 per day (not always achieved!) and he has out-of-house repairs and a deal going with the tyre shop next door. Turnover is about £1.5m.

Hardly a month goes by without one of the large dealerships making him an offer for his business - and these are always serious seven-figure offers! This is a family business and his son and his wife and daughter all work there and one day will take over the place. Both he and his family have carefully laid plans for expansion.

So the dealerships are beating a path to my garage-owning friend's door with a TO one-quarter of size of @Rob1985 's £6m, but our OP cannot even get M&A people excited about taking him on. (There are other local factors at play with that garage, as he is taking away the dealerships' lucrative Dowee, Cheetem & Howe repair and servicing trade and their disgraceful pricing structure!)

To find out, we must first ask what makes a company attractive to a potential buyer - and there are two things right at the top of that list - assets and profit. Without those two things, a company is worth nothing.

A building owned outright is an asset. Land is an asset. Key IP is an asset. Reliable long-term contracts are assets. All sorts of things can be assets - that garage owner has a healthy local market share and a very good reputation and those too are assets; in fact, his whole operation is one bundle of healthy assets!

A good healthy long-term record of profits also makes a company attractive to buyers.

So my question to @Rob1985 is - what does your P&L say about assets and profit?