Broker vs. No Broker: Real World Experiences

By Max Oltersdorf
CEO and Co-Founder at Quiddity

To hire a broker or not? What's a business owner to do?
To hire a broker or not? What's a business owner to do?

Deciding whether or not to hire a broker is one of the most important decisions you’ll have to make in your business sale process. In this post, we interview two business owners who ended up selling their companies to institutional buyers but who went about the process in very different ways.

The first seller, who asked to remain anonymous (but we’ll call Tim for the purposes of this post), decided to hire a broker. In his case, Tim was able to find an honest and transparent broker who allowed him to accomplish the goals he had set for his sale process. He thought it was worth the 4%-5% fee he ended up paying and enjoyed the fact that he had someone to guide him through the process.

The second, Robb Steinberg of TrialWorks, sold his company to Ridge Road Partners in February of 2017. Robb decided to run his own deal process and had a couple of close advisors who helped him get a great outcome. He was able to find the buyer he wanted without the use of a banker or broker, saving him hundreds of thousands in fees.

Using a broker and having a great experience.

Tim enjoyed running his growing business but was starting to think about taking chips off the table. As the business grew, potential buyers would reach out to learn more about the business and Tim’s goals.

“I was approached by a couple strategic businesses in the last 4-5 years with offers but didn’t think they were great cultural fits and so said no to every one,” Tim said in our interview. “I ended up asking ‘Is there a way to keep the identity of the business and stay in charge?’”

Tim stumbled into the banker he ended up using by chance.

“One of the potential strategic buyers had hired an investment bank to help find companies and I got to know him quite well. He told me I wasn’t valuing myself correctly and asked me what I was looking for in a potential buyer. I found true transparency and honesty and, when I met with a couple of firms, I trusted the value the banker brought. I checked his references.”

For Tim, finding a banker he trusted was a great piece of luck. Tim felt like his choice in a buyer would come down to both price and strategic and cultural fit. Having an ally to negotiate deal price was a major plus for him.

Tim was also in no rush to sell. “I hired the banker initially in June of 2016. We signed our first letter of intent in October of 2016 and closed in April of 2017.” For him, a slower deal process worked so he could continue to focus on running the business.

The banker ended up being expensive but Tim thought it was worth the cost.

“I paid based on a Lehman fee structure. The total deal cost was 4%-5% with a flat fee upfront and the rest fully on contingent (of a deal closing). I also had to pay for his travel and printing and all that. We ended up with 14 LOIs on the business and didn’t end up taking the highest offer. Based on my experience, I would hire an investment banker again.”

Tim had a great experience with his banker and was able to sell his company to a firm that valued the culture he built and his desire to remain with the company.

Not using a broker and having a great experience.

Using a banker may have been the right move for Tim but it isn’t for everyone. Robb Steinberg of TrialWorks, sold his business in 2017 to Ridge Road Partners without a banker and had a similarly great experience.

TrialWorks sold to Ridge Road Partners without using a broker
TrialWorks sold to Ridge Road Partners without using a broker

For background, TrialWorks is case management software that allows law firms to manage their caseload, search documents, contact clients, and run their practice. They are the market leader in their niche.

Similar to Tim, Robb was in no rush to sell. He explored that option six or seven years ago and even hired a banker to determine options at that point.

“Nothing came of that for good reason,” said Robb. The company wasn’t mature enough to command the price Robb was looking for and he knew he could get more value by growing the business and waiting.

However, by the middle of the decade, Robb decided to once again explore options.

“I got to the point where I had been running my company for 20 years and was receiving 2-3 emails per week from private equity funds. I initially went down the road with one of them but decided it was taking too much of my time.”

Robb decided to learn more. “Once a month, I reached out to one (PE firm)” to learn about the M&A process and what they were looking for. “I really wasn’t finding a desire that I needed to exit and I had 25 employees on my mind everyday.”

Robb stumbled into an introduction to Ridge Road Partners, the firm that ended up buying the company, because his accountant was doing due diligence on one of the deals they were working on. His accountant knew that Robb was potentially interested in an exit but that he didn’t want it to dominate running his business and thought Ridge Road could be a great partner.

Robb engaged Ridge Road and, from the beginning, had a great experience.

“The process was very painless and very transparent on both sides. We had our books done by an accountant we liked and the firm presented the process to me in a very straightforward manner. I was sold on the deal before we even got down to the details.”

Robb also took his time to make sure he wasn’t overly distracted and that the deal was one he wanted.

“What made it work was that it was a very slow, very friendly process. It ended up taking 8 months from the initial conversation to when we closed.”

In addition, Robb had a lawyer during the process and a friend who had gone through many M&A processes before. For him, having that small team was enough. “I paid (my friend) so when things got tough to negotiate, he did the negotiating.”

Robb was surprised at how easy the whole process felt and had nothing but good things to say about Ridge Road Partners.

I never felt in over my head. Not at all. The firm was very transparent to me and I got to visit other businesses they had acquired to meet with owners and principals.”

In the end, Robb just felt like a banker was unnecessary. “One thing that was important to both of us was minimizing costs. We saw no need to get bankers and lawyers and accountants and perform technical due diligence until we had a really really formalized structure outlined.”

Robb is thrilled with the decision to run his own deal process. In addition to better controlling his timeline and flow, he saved hundreds of thousands of dollars that went directly into his pocket.

Takeaways

People can have great experiences whether they hire a banker or not.

For those who want a guiding hand every step of the way and don’t mind the fees, hiring a banker is a good option. However, make sure you do your homework like Tim did and are hiring someone you trust and who has experience in your industry or geography.

For folks who value control over their process and are looking to save on costs, not hiring a banker and finding a partner who specializes in founder-owned transactions is a great option. If you need help finding potential buyers, think about engaging Quiddity. We offer introductions between you and top PE firms for free (yes, really).

Both Tim and Robb prove that selling your company doesn’t have to be painful if you’re interacting with people you trust.

Quiddity connects you with buyers for free
Quiddity connects you with buyers for free

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