Bankers, Brokers and Finders, Oh My – Part 1

Every business owner at one time or another wants to sell their Silicon Valley business and move from Los Altos, Mountain View or San Jose to Tahoe or Tahiti. Being bogged down in daily operations doesn’t leave a lot of time for an owner to make the necessary contacts to build interest in their company. Owners wish they could just have someone else sell their business.

There are a number of professional advisors that can assist in the sale of a company. Like fundraising, however, management cannot simply pass to someone else a function this important. One of the key reasons for management involvement is that a business buyer is typically found through the company’s own contacts.

As with any advisor, choosing the right professional to advise on potential acquirers and transaction terms is a combination of validation by your network, expertise, and your own personal comfort with the individual with whom you will be working.

One requirement that is often overlooked is the need for the professional to be licensed. States have differing licensing requirements. Putting aside securities laws, business brokers in California typically must have some form of license. Often, a real estate broker license, or law license may be required. If the business sale is structured to involve a merger, stock transfer, or similar transaction, the broker may need to be licensed as a broker-dealer for securities laws purposes. Working with licensed professionals provides some comfort of expertise and sensitivity to legal compliance.

Advisors in transactions are typically compensated on a commission basis. Because of this, there may be a temptation for less scrupulous advisors to color their advice to allow a sale to proceed. It is always important to explore with the advisor, before he or she is hired, instances in which they have recommended clients not to proceed with deals.

Advisors that assist with businesses having a sale price in the low millions or less are generally considered either finders or brokers. A finder will simply make an introduction to a potential buyer in exchange for a fee or commission, while a broker will provide more extensive services, such as valuation determination and preparing the business for sale.

See Part 2 for more on professional advisors.

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