2017 Best Practices Study

2) Be patient, but persistent . So, what should you do while waiting on the seller’s timing? The best acquirers use this time to do three things.

a) Qualify the opportunity and make sure it fits your criteria. Not every acquisition opportunity is the right fit and the earlier in the process you make this determination, the better for all.

b) If the fit is right, work on building trust and a relationship. Selling is not a purely financial decision, but is often highly personal and emotional. Trust is a strong currency that can help close the gap when competing with the industry buyer heavyweights on financial terms. c) Use the time to clarify the objectives of the sellers. Sure, maximizing financial value is an objective of the seller, but it’s probably not the only one. There may be sensitive family or employee issues to address. Perhaps there are business opportunities that the seller will need a partner with deeper pockets to help them pursue. Patient and persistent relational investments in targeted agencies can help position your firm as a preferred buying candidate when the timing is right to sell. 3) Know the competition . Although you may not be able to compete with the financial terms the leading acquirers can offer, you will still benefit from knowing what you are competing against. The better you understand how the competition structures their offers, the better positioned you are to compete. Some privately-held brokers have found it beneficial to participate in an acquisition process that includes multiple buyers competing for the same deal, including some of the leading acquirers. The odds of winning these deals might be low, but the intelligence gathering regarding the industry leaders can make it worth the effort. 4) Sell culture . Malcolm Gladwell wrote in his New York Times best seller David & Goliath that underdogs win more often than we expect, in part because their disadvantages force them to discover advantages. One advantage that many privately-held brokers have is their culture. As important as price and structure are in every transaction, post-closing conditions also matter. This is especially true if the selling shareholders plan to remain with the business for an extended time. What does it mean to sell culture? Privately-held brokers can often offer sellers reasonable operating autonomy, personal flexibility, a seat at the table in setting the strategic direction for the firm and other appealing aspects of life post-closing that may be difficult for the leading buyers to match. 5) Leverage your equity . Another potential advantage for privately-held brokers is the ability to use their own equity to entice sellers. By definition, agency sellers are agency owners. They understand the value of agency equity and although they may be ready to take some chips off the table, they may also value the opportunity to maintain a more limited equity position in the acquiring firm. This may mean including equity in the purchase consideration, providing an opportunity to acquire equity post-close, or both. The current M&A marketplace is aggressive, competitive and challenging for all buyers. Private equity investors, having discovered the economic benefits of agency ownership, are likely to keep driving the market for the foreseeable future. Privately-held brokers that try to compete for deals primarily on financial terms will likely be unsuccessful. However, privately-held brokers have competitive advantages that, when paired with reasonable financial terms, are proving capable of getting deals done.