What Relationship Should I Expect with my Business Intermediary
Although the intermediary will develop relationships with both buyers and sellers, most follow a specific mode of operation in how they conduct the business of bringing the two together. Following are some of the more common approaches used by intermediaries in conducting their business.
Exclusive Seller Representation
Because the number of buyers in the marketplace usually exceeds the number of sellers (by a factor of 10 to 1), the key to success is the ability to develop a group of qualified selling candidates. The relationship preferred by most intermediaries is an exclusive arrangement requiring the payment of a fee by the seller if the company is sold. In addition the intermediary may require a retainer from the seller which is nonrefundable, but is credited toward the fee when the transaction closes.
Exclusive Buyer Representation
In certain cases, intermediaries will represent buyers on an exclusive basis in conducting an acquisition search. This usually occurs when a corporate acquirer is seeking a highly specific strategic acquisition and lacks the in-house resources to conduct the search. In these situations, the intermediary is almost always paid a retainer which is credited against any future success fees resulting from a completed transaction.
Non-Exclusive Representation of Buyers and Sellers
In some situations, the owner of a company may truly desire to sell the business, but is unwilling to sign an exclusive agreement with an intermediary to represent him in the sale. He may, however, be willing to assure the intermediary in writing that a fee will be paid if the company is sold to a buyer procured by the intermediary within a prescribed time.
Fee Protection
In some circumstances the seller refuses to either pay a fee or guarantee payment in writing in the event of a sale. To invest time and effort in such situations is very risky for the intermediary because, at best, there is no written guarantee that a fee will be paid and, at worst, the seller has stated categorically that no fee will be paid. In these cases, the intermediary will almost always seek "fee protection" from prospective buyers, usually in writing, before identifying the acquisition candidates. "Fee protection" letters state, in effect, that "the undersigned (buyer) agrees to pay the intermediary fee if the seller will not." Unlike an exclusive seller relationship, it means that the buyer will have to add the payment of intermediary fees to the purchase price and financing requirements in his feasibility analysis.
Finder’s Fees
When the intermediary has no agency relationship with either the seller or buyer he or she is often designated as a "finder." Primary emphasis is on connecting the parties and moving on to the next transaction. Little effort is expended on conducting a well-planned search for a buyer or seller since the fee does not fund for this level of service.
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