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Careful with M&A industry brokers

June 8, 2024
Careful with M&A industry brokers
      Recently a well known industry M&A broker has been sending out its usual "what's for sale" alarm and integrator companies with a focus on central stations.
Sellers should question any M&A broker who is out prospecting for companies to sell, because most importantly, who is the M&A company working for?
      As to this M&A broker, they have been running this prospecting message for months and yet I have not seen one listing for this type of opportunity, which leads me to believe that are prospecting for one buyer.  The problem, the seller does not know if their business is being marketed to the highest potential.
      My company with over 42 years of experience as a central station is a qualified buyer and my message to anyone is don't sign an exclusive contract with anyone unless you can verify all the prospects that your M&A broker will and prove that they have effectively marketed your company to get the best price and terms available.
       But why not sign an exclusive contract, case in point - USA showed strong interest in a company directly to its owner.  Six months later an M&A broker called and said the owner wanted to sell; great USA is ready to buy, but the seller signed an exclusive contract and in this case made one phone call in return for a sizable commission from a lead provided from the seller. For various reasons USA did not pursue the company because of ethical differences with the M&A broker. End result was that a transaction that could have closed in less than three months, closed a year later. The seller wanted out but the M&A broker was more concerned about its full commission.
      It's only good business practice, trust but verify.
Bart A. Didden, President
U.S.A. Central Station Alarm Corp.
Port Chester, NY
Milford, CT
St. Paul, MN
            I suppose it’s a matter of perspective, but perhaps the best broker is the one who can make one phone call and put the best deal ever in place, closing in weeks, earning the full commission agreed upon.  Most deals of course don’t work that way and brokers need to invest a good, sometimes great, deal of time, effort and money, promoting a business for sale, only to never sell and eventually losing their “customer”.  It’s fair to say that brokers do have their “go to list”.  There is nothing wrong with that unless their “go to list” is where they really have their loyalty.  A broker, by definition and usually by contract [the broker agreement] is the “agent” [to differing degrees and authority] and owes [usually] undivided loyalty to the principal, which is you, if you engaged the broker. 
            This is an incestuous industry, especially at the higher end because sellers and buyers are limited.  This isn’t the car industry [though I suppose buying and selling dealerships is its own unique industry].  How about it’s not the pizzeria industry. Some of the buyers are fairly well known.  Unfortunately, in my experience, they are out there ready to pounce on you and take advantage of you, slowly wearing you out in the due diligence and then contract preparation and negotiation phase.  Sellers are at a severe disadvantage when allowing a buyer to set the pace of the deal because most sellers are selling because they want out, not later, not soon, now.  It’s not easy pulling the plug on your ownership of the business.  You started it; you built it; it’s yours and sometimes consumes “most of you” and here you go giving it up for ……. Money; and you rely on your broker to assure you it’s the best price and the best deal.
            Brokers are not all the same but most share common requirements when they take you on to sell your business.  They want a contract, a “brokerage agreement”.  They want it long term, years if they can get it; they want exclusivity; some want money up front; some want right to bring in other professionals at your expense.  Some may be worth it; others not so much.
            K&K works differently.  We do not require a term, you can terminate any time; we do not require exclusivity; we do not require money against the broker commission or broker activities; we disclose any conflicting affiliations or familiarity with buyers [or sellers] because often both sides are regular clients of K&K.  Another difference, which should be important to you, K&K will act as your broker only if K&K is your lawyer; therefore we are in a fiduciary capacity,  we owe you our loyalty; period.  That is an important distinction between K&K and any other broker servicing the alarm industry.  Call Ken Kirschenbaum, direct, with any questions:  516 747 6700 x 301.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301