Working with Brokers and Sourcing Deals: Building Relationships, Consistent Follow-Up, and Efficient Deal Filtering
When it comes to acquiring a small or medium-sized business (SMB), building strong relationships with brokers and mastering the art of deal sourcing are critical steps. Brokers often have access to off-market deals and are key gatekeepers in the business acquisition space. However, simply connecting with brokers isn’t enough—you need to establish trust, maintain consistent communication, and develop a system for efficiently filtering deals to find the right opportunities.
In this post, we’ll discuss the role of building relationships with brokers, the importance of consistent follow-up, and tips for filtering deals efficiently as you navigate the acquisition landscape.
The Role of Brokers in SMB Acquisitions
Brokers are an essential part of the business acquisition ecosystem. They work as intermediaries between sellers and buyers, helping to facilitate deals, and often hold access to a wide range of listings, including off-market opportunities. For buyers, brokers can be valuable partners, providing industry insights, helping to negotiate terms, and offering guidance throughout the acquisition process.
Types of Brokers:
Business Brokers: Specialize in small business transactions and typically handle deals with purchase prices under $5 million. They often represent sellers and are responsible for marketing the business, screening buyers, and managing negotiations.
M&A Advisors: Focus on larger transactions, usually with businesses valued at $5 million and above. These advisors often handle more complex deals, including those involving private equity or strategic acquirers.
How Brokers Add Value:
Access to Deals: Brokers have established networks and often have access to listings that aren’t widely advertised, giving you a chance to consider deals that others might not know about.
Market Expertise: Experienced brokers have deep knowledge of specific industries and local markets, which can be invaluable when evaluating opportunities and navigating negotiations.
Streamlined Processes: Brokers can help streamline the acquisition process by handling much of the legwork, including due diligence coordination, buyer-seller communications, and closing logistics.
Building Strong Relationships with Brokers
Building a solid relationship with brokers is key to getting early access to high-quality deals. Brokers receive inquiries from numerous buyers, so establishing yourself as a serious and credible buyer can give you a competitive edge. Here’s how to build those relationships effectively:
Strategies for Building Relationships with Brokers:
Be Clear About Your Criteria: Clearly communicate what type of business you’re looking for, including industry, size, location, and financial requirements. The more specific you are, the easier it is for brokers to match you with suitable opportunities.
Demonstrate Seriousness and Credibility: Brokers are more likely to prioritize buyers who are prepared and ready to move forward with a deal. Show that you have access to financing, a clear acquisition strategy, and a timeline for making decisions.
Respect Their Time: Brokers are busy, so be efficient and respectful in your communication. Whether it’s responding to an email or reviewing a deal, being prompt and professional builds trust and strengthens the relationship.
Follow Through on Commitments: If you express interest in a deal, follow through by signing NDAs, reviewing documents, and providing feedback in a timely manner. Consistent follow-through shows brokers that you’re a reliable partner.
Example: Successful buyers often build relationships with brokers by staying in regular contact, even when no immediate deal is on the table. A quick email or phone call to check in, express continued interest, or ask about market trends helps keep you top of mind when new opportunities arise.
The Importance of Consistent Follow-Up
In the world of business acquisitions, persistence pays off. Consistent follow-up is crucial for staying informed about new listings and maintaining strong relationships with brokers. Deals can come and go quickly, so staying in regular communication ensures you don’t miss out on promising opportunities.
Best Practices for Consistent Follow-Up:
Create a Follow-Up Schedule: Develop a routine for checking in with brokers. Whether it’s weekly, bi-weekly, or monthly, consistent outreach keeps your name top of mind and signals that you’re actively searching for a deal.
Ask for Updates on Off-Market Opportunities: Some of the best deals are never publicly listed. By regularly asking brokers if they have any off-market opportunities or early-stage listings, you increase your chances of being first in line.
Provide Constructive Feedback: If you pass on a deal, explain why. Providing constructive feedback helps brokers better understand your criteria, allowing them to refine the deals they send your way in the future.
Use a CRM or Spreadsheet to Track Communications: Keeping track of your interactions with brokers ensures that no contact slips through the cracks. You can log key details such as deal criteria, the date of the last communication, and notes on potential opportunities.
Example: An experienced acquirer might have a network of 10-20 brokers they consistently check in with. Even if no deals are immediately available, staying in touch demonstrates seriousness and ensures that when a suitable opportunity arises, the broker will think of them first.
Efficient Deal Filtering: Finding the Right Opportunities Quickly
With a consistent pipeline of deals flowing your way, the next challenge is filtering them quickly and effectively. Many deals won’t meet your criteria, so having a process in place to screen opportunities efficiently is essential for staying focused on high-potential targets.
Tips for Efficient Deal Filtering:
Establish Clear Criteria: Define non-negotiable deal parameters such as industry, size (revenue or EBITDA), location, and business model. Having these criteria clearly outlined allows you to quickly eliminate deals that aren’t a fit.
Use a Checklist for Initial Screening: Develop a checklist for the key elements you need to evaluate when a deal comes across your desk. This could include financial health, growth potential, customer concentration, and alignment with your expertise.
Prioritize Financial Metrics: Start by quickly reviewing the financials. If the deal doesn’t meet your revenue, profit, or valuation multiples, you can immediately move on to the next one. This avoids spending time on deals that don’t make financial sense.
Assess Risk Factors Early: Look for red flags such as declining revenue, high customer concentration, or heavy reliance on the owner. Identifying these risks early on allows you to pass on deals that carry too much uncertainty.
Develop a Fast “Go/No-Go” Decision Process: Once you receive a deal, decide within 24-48 hours whether it warrants deeper investigation. This fast decision-making process keeps your pipeline moving and ensures you’re not bogged down by unqualified deals.
Example: A buyer focused on home services might receive dozens of listings from brokers. By quickly filtering for criteria like EBITDA margins, geographic location, and customer retention rates, they can narrow down the list to the top 10% of deals worth exploring further.
Leveraging Broker Relationships for Long-Term Success
The relationships you build with brokers and the systems you develop for deal sourcing and filtering will play a significant role in your long-term success as an acquirer. By staying consistent in your follow-up, maintaining credibility, and refining your screening process, you position yourself as a top buyer who brokers will prioritize when quality deals arise.
Key Takeaways:
Build and nurture relationships with brokers by being clear, professional, and responsive. Over time, these relationships will give you access to better opportunities.
Consistent follow-up is crucial for staying informed about new listings and off-market deals. Persistence helps you stay ahead of the competition.
Efficiently filtering deals ensures you focus your time and resources on the highest-potential opportunities. Clear criteria and a streamlined screening process are essential for quickly identifying viable targets.
Conclusion: The Art of Working with Brokers and Sourcing Deals
Building strong broker relationships, maintaining consistent communication, and having a process for efficiently filtering deals are fundamental components of a successful acquisition strategy. Whether you’re a first-time buyer or a seasoned acquirer, mastering these elements will help you find better opportunities, move quickly on high-potential deals, and ultimately achieve your acquisition goals.
