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HIRING A BROKER
Just as you would use a broker to sell your house, the same goes for selling your business. You could try to do the deal on your own, but M&A requires so much specialized knowledge that it would be foolish not to avail yourself of a broker's expertise. The bottom line is that even after paying for the broker's service, you will almost undoubtedly come out well ahead of where you would if you tried to sell your company by yourself.
Many of the most tragic tales of sellers getting burned could have been averted if the owner had hired a professional to help out.
Let's face it: Most CEOs and founders have little experience with selling companies. Having a broker -- one that is skilled -- can be very helpful. They understand the many pitfalls of a transaction and will be helpful in providing a valuation for the company, finding buyers, getting a good price, and negotiating terms. A good broker will have a team, which includes valuation experts, analysts, and deal makers who can find buyers and negotiate a good deal.
One key difference between a real estate broker and the M&A variety is that you generally pay a retainer when you hire a good broker. So you shouldn't hire one until you're ready to sell. Generally, an owner is foolish to merely "test the waters"; word will get out, and since most industries are close knit, you run the risk of "shopping your deal."
When retaining a broker, you need to be careful and do your own research (as described in the next section). Just as there are many incompetent home brokers, the same goes for M&A brokers. Interestingly enough, there are no official licensing regulations for brokers. Basically, anyone can print some business cards, set up a telephone phone (and probably a Web site), and hang out the proverbial shingle as a broker.
The seller also must beware of unscrupulous brokers. Legally, a broker is an agent that represents the company, known as the principal. As a result, the broker owes a fiduciary responsibility to the company. That is, the agent must act in good faith, disclose all potential conflicts of interest, present all offers to the seller on a timely basis, and disclose material facts to both parties. Thus, a broker would have to disclose if it has a fee-based agreement with a buyer. If not, the seller has the right to deny the broker any fees from the transaction or even to sue the broker in the case of an "inside deal." Note that the seller's broker must act in good faith with any potential buyer as well.
Moreover, it is customary that a broker gets paid when he or she locates a buyer that is ready, willing, and able to carry out on the seller's terms.
