By Gregory Kovsky with IBA
My firm, IBA, has a long history of welcoming “buy side” business brokers into the transactions we facilitate as a “sell side” business brokerage firm serving Washington, Oregon, & Alaska. The guiding philosophical principle at IBA is the “Golden Rule” of do unto others as you would want them to do unto you. Applying this principle to our clients, our mission statement goals for each of our engagements is to facilitate a “win-win” transaction in a timely manner while maintaining an environment of confidentiality where a communication atmosphere of full disclosure and the utilization of “best practices” exist between the parties.
One fairly common business brokerage practice at peer firms that has always seemed counterproductive and not in a “sell side” client’s best interest is discouragement of the participation of a “buy side” broker in the transaction. The reason for an anti-collaboration attitude is frequently financial, as “buy side” brokers commonly request the ability to share commission, as is common in real estate, something that is financially detrimental to a listing broker. This position makes sense from the listing broker’s position, if they can potentially sell the business at the same price to another buyer, but is the position in the “best interest” of the seller and the mergers & acquisitions industry. The position at IBA is “NO”. The reason for the negative response is multifold. First, at a superficial level a business broker should be ambivalent to who the buyer is and whether they are represented. Their goal should be to deliver the best buyer in terms of price, terms, and ability to their client. Personal self interest should not be a component to the decision process.
Self-serving financial motivation aside the following are the five primary reasons why it is beneficial to have business brokers on both sides of the table.
- Knowledge – Plain & simply many buyers, “Don’t Know What They Don’t Know”. There is no substitute for relevant, specific knowledge at an appropriate place and time. A common place where buyer’s brokers add value from a knowledge perspective involves knowing what questions to ask and documentation to review when assessing a company for acquisition.
- Experience – Knowledge is beneficial if you have time to comprehend and apply it. However, in a dynamic marketplace where buyers are competing for a specific company, the ability to make decisions in a timely manner through application of negotiating strategies can be the difference between obtaining a mutually executed letter of intent and being the buyer who needs to find another company to acquire. Experience is the key to being able to act with confidence in a timely manner.
- Ability – The end goal or a middle ground compromise can be self-evident in negotiations, however the ability to get there can be problematic, if the pathway in terms of communication and persuasion are not able to be navigated. There is a reason that significant training is provided to military pilots before they are asked to land on an aircraft carrier or fly a combat mission. The skill they possess is significantly greater than that of a private pilot flying fixed landing gear small planes. Skill takes time and repetition to develop to excellence. Mergers & Acquisitions intermediaries are the fighter pilots of business negotiations. It is not recommended to enter a dogfight with a party of greater acumen in the sky or a negotiation without equal skill on both sides.
- Resources – The purchase and sale of a privately held company is a team process. Both sides commonly will have attorneys, accountants, and other professional advisors. Assembling a team of knowledgeable, experienced, highly skilled transaction team members can be the difference between completing an acquisition or not. A business broker can be a great source for names of “deal making” professionals to interview as potential support professionals. Another important member of the “buy side” team is commonly a SBA or commercial banker. An experienced, knowledgeable business broker can be a great source for banking community referrals, as they will have current knowledge of present credit approval underwriting standards and the appetite for loans at specific banks in the community.
- Communication – Anyone who has studied negotiations knows that often the greatest achievements are made through secondary parties or back channel communication. In a business purchase and sale negotiation, it is common for parties to mentally & emotionally to dig into positions. Losing face can become an issue that prevents agreement. I have witnessed many times where intermediaries and/or attorneys get a transaction “out of the mud” and moving forward by continuing communication and based on familiarity for parties that had “stomped off” thinking the deal was lost.
In my twenty-eight years as a mergers & acquisitions intermediary, I can recall numerous successful transactions where business brokers on both sides of the table played critical roles in getting the deal done. One of the best “buy side” brokers in the Puget Sound area is John Martinka. Mr. Martinka has successfully completed deals with IBA representing buyers since the 1990’s. Our team often recommends him to buyers desiring professional representation and view his participation as a value adding benefit to the deal. Few possess his knowledge, experience, skill, resources, and communication ability. I look forward to the next time I walk into a conference room and see John sitting on the other side of the table with a buyer who is prepared and ready to purchase a company.
Gregory Kovsky, the President & CEO of IBA, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, and estate planning communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. Professionally, as an intermediary, Mr. Kovsky specializes in the sale of manufacturing, distribution, technology, industrial, marine, and horticulture businesses. Mr. Kovsky can be reached directly at (425) 454-3052 or gregory@ibainc.com. Additional information on IBA, the Pacific Northwest’s oldest business brokerage firm, can be found at www.ibainc.com.
