Business Brokers: Love or Hate? An M&A Lawyer’s Take

When buying or selling a business, one question always sparks debate: Do you need a business broker? Opinions are often divided—some say brokers are invaluable facilitators, while others feel they complicate or inflate deals. As an M&A lawyer who has worked closely with both buyers and sellers, I’ve seen the good, the bad, and the costly.

In this blog, we’ll unpack the role of business brokers, their pros and cons, what they cost, and where legal professionals and legal services step in. If you’re considering a business acquisition or sale, this guide is for you.

Introduction to M&As

Mergers and Acquisitions (M&A) refer to the strategic process of buying, selling, or combining companies to achieve specific business objectives. This multifaceted process involves a series of activities, including valuation, due diligence, negotiation, and integration. Each step requires the expertise of financial professionals, lawyers, and other advisors to navigate the complexities involved. Good business brokers can play a pivotal role in this process, acting as intermediaries who facilitate transactions. The M&A process is not only about financial transactions but also about aligning strategic visions and ensuring a smooth transition of ownership.

1. What Are Business Brokers?

For the Buyer

Business brokers act as intermediaries who help buyers find suitable businesses for sale. Think of them as real estate agents—but for businesses. They often have access to listings not publicly available and can help buyers evaluate opportunities, initiate contact with sellers, and negotiate deal terms.

For the Seller

For sellers, brokers handle the marketing and initial vetting of prospective buyers, catering to different client profiles. They help prepare marketing materials like Information Memoranda (IMs), assess business value, and act as a go-between to protect confidentiality and maintain deal momentum.

Malcolm Zoppi: “Brokers often serve as the first filter. They screen out ‘window shoppers,’ allowing only qualified buyers to reach the negotiation stage.”

2. Advantages of Business Brokers

For the Buyer

• Access to Hidden Listings: Some businesses are sold privately to protect trade secrets or client relationships. Brokers can provide access to these off-market deals.

• Industry Insight: Brokers often specialise in certain sectors and can offer market insights or identify red flags early.

• Negotiation Support: Brokers can help manage emotional sellers and keep conversations productive. They understand the distinct client profiles they serve, typically catering to small firms and individual entrepreneurs.

For the Seller

• Time Savings: Selling a business is time-consuming. A firm, such as a business broker, manages the legwork—screening buyers, organising documents, and coordinating meetings.

• Higher Sale Price: A good broker may attract multiple buyers, increasing competition and driving up the price.

• Confidentiality: Brokers use blind listings and NDAs to keep the sale discreet.

3. Disadvantages of Business Brokers

For the Buyer

• Biased Representation: Most brokers work for the seller and are incentivised to close at the highest price. Their loyalty typically lies with the seller.

• Limited Due Diligence Help: Brokers rarely assist with legal, tax, or operational deep-dives. That’s the buyer’s responsibility—with help from lawyers, accountants, and consultants who can create essential legal documentation and structure business deals.

• Overstated Valuations: Some brokers inflate earnings or future potential to attract higher bids, leading to mismatched expectations.

For the Seller

• Misalignment of Interests: Some brokers push for a quick sale to earn their commission—even if waiting could yield better offers.

• Standardised Approach: Brokers often use cookie-cutter marketing or valuations, which may not reflect your business’s unique value or the specific skill sets required for accurate assessments.

• Exclusivity Agreements: Sellers often sign binding agreements giving the broker exclusive rights for 6–12 months. Getting out can be tricky.

Malcolm Zoppi: “I’ve seen sellers locked into exclusivity contracts that give too much power to underperforming brokers. Always review broker agreements and seek legal advice where possible.”

Success Fee Costs of Business Brokers

For the Buyer

• No Direct Cost (usually): Buyers typically don’t pay the broker directly. However, this doesn’t mean the broker is free—commissions are built into the sale price, similar to how M&A advisors work by incorporating their fees into the overall transaction cost.

• Risk of Overpaying: Because the broker’s commission is based on the final sale value, buyers may end up paying more than the business is truly worth.

For the Seller

Commission-Based Fees: Standard broker fees range from 1% up to 12% of the sale price. The more services included, the higher the percentage. Instead, the higher the sale price the lower the percentage.

Marketing Fees: Some brokers charge upfront fees for preparing the IM, listing, or financial recasting.

Hidden Clauses: Watch for “tail” clauses, which entitle brokers to a commission even after the agreement ends, if the buyer was introduced during the contract period.

Malcolm Zoppi: “Sellers should pay close attention to tail clauses, termination terms, and fee structures. These may be negotiable.”

4. The Role of a Business Broker

A business broker can play a crucial role in the buying and selling of businesses, acting as an intermediary who facilitates the entire process from initial consultation to closing. When good, they provide comprehensive services, including valuation, marketing, and negotiation. They work closely with clients to understand their needs and goals, providing guidance and support throughout the selling process. By leveraging their network and market insights, business brokers help clients navigate the complexities of the M&A process, ensuring that transactions are executed efficiently and effectively.

5. The Selling Process

The selling process involves several stages, from preparation to closing. It begins with a thorough valuation of the business, followed by marketing and promotion to potential buyers. Business brokers and advisors work closely with sellers to prepare the business for sale, ensuring that all necessary documents and information are in order. They also facilitate negotiations between buyers and sellers, providing guidance and support throughout the process. The selling process can be complex and time-consuming, requiring patience, persistence, and expertise. Business brokers and advisors play a vital role in ensuring a successful sale, providing comprehensive services and industry knowledge to achieve the highest value for their clients.

6. Valuation Methods

Valuation is a critical step in the M&A process, as it determines the worth of a business. Various valuation methods are employed, including asset-based valuation, income-based valuation, and market-based valuation. Intellectual asset valuation is also an essential aspect, considering the company’s intangible assets such as patents, trademarks, and copyrights. Business brokers and advisors use these valuation methods to assess the value of a business, taking into account factors like market conditions, financial performance, and growth potential. Accurate valuation is crucial as it can significantly impact the selling price of a business. Therefore, working with experienced professionals who understand these methods is essential to achieving the best possible outcome.

7. An M&A Lawyer’s Opinion: The Role of Business Brokers After Heads of Terms

Once Heads of Terms are signed, the broker’s role should diminish significantly. This is the phase where legal and financial due diligence takes center stage, often involving various teams.

At this point:

• The deal moves from matchmaking to risk management.

• Lawyers draft and negotiate the Sale and Purchase Agreement (SPA).

• Accountants verify earnings, working capital, and tax risks.

• Operational consultants may assess integration or handover plans.

While brokers can help facilitate communication, they should not interfere in legal negotiations or due diligence. Their incentive is to keep the deal alive—but that shouldn’t come at the cost of your legal protection.

Conclusion: Love or Hate?

So, should you love or hate business brokers?

The answer depends on who you hire and how you manage them. A great broker can add real value, especially in smaller deals. But like any service provider, their value depends on transparency, alignment of interests, and professionalism.

If you’re planning a business sale or acquisition, build your advisory team carefully. Involve an experienced M&A lawyer early, review all broker contracts before signing, and always know when it’s time to take the reins from the broker and hand them to your legal team. M&A advisors, unlike business brokers, often consider strategic potential targets, which can significantly impact the success of your transaction.