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Thread: Buying and selling a business without a broker

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    Buying and selling a business without a broker

    There have been several threads over the years discussing buying websites without a broker. There is an interesting article in this week's Crain's Chicago Business (also online at http://www.chicagobusiness.com/artic...f-matchmaking#) discussing the problems that buyers and sellers of manufacturing businesses have finding brokers to handle small transactions (under $10 million).

    Simply put, it takes a lot of time and effort to effectively broker a transaction. The size of typical deals for websites and web-based businesses is usually much smaller than even a very small manufacturing company transaction. As a result, a so-called broker is probably going to do very little work, either in the sales effort or in due diligence. Those jobs, if done well, are very time consuming. Since brokers are usually paid only if a transaction is consummated and end up with no compensation at all in a significant percentage of cases, they must make enough money on the deals they close to compensate their efforts on the deals that don't.

    I'm curious to hear from the web brokers that are EP members. What is the smallest size deal you think you can properly broker? I'm not talking about a deal that you will take and list on your website with no additional effort. I'm also interested in what you consider the role of a broker in a website sale to entail. Do you actively identify and seek out buyers? Do you prepare detailed packages of information for potential buyers? Do you verify the information? In other words, do you do what a broker selling a small manufacturing company would be expected to do to earn his fee?
    Last edited by Kay; 21 May 2014 at 6:26 pm. Reason: Promoted to front page article

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    Hey David,

    This is an interesting problem and one we're involved and interested in right now, actually.

    We primarily operate in the 6K - 100K space while many other brokers are (wisely?) in the 50K-500K or 200K - $1MM+ arena.

    We can't put the same effort, energy, love, and attention into a $10K brokered site as we can into an $80K brokered site - it's just not worth it from an ROI perspective.

    Still, if we're going to list a $15K site it has to pass our standards/criteria for listing - otherwise buyers would lose confidence and we'd lose our trust at both ends of the spectrum.

    Fortunately, most $6K - $20K sites are much less complex (in terms of diversification of traffic, monetization, etc.) and the scams/frauds in this section of the market are oft-repeated and easier to spot.

    Because of this, we're able to put the same effort into vetting at the lower end as we are towards the higher end - there's simply less to do at the lower end of the scale.

    Beyond the initial vetting is where things become a little less clear. We're much less likely to get involved with buyers looking for in-depth deal structuring for a $8K deal as opposed to a $60K deal. We sometimes avoid going down the rabbit hole with buyers on the lower end because it's just not worth it to us.

    It helps to know that there's another buyer reader to take the complicated buyer's place - especially for deals under $50K. The demand is high enough where we can focus our efforts on genuinely interested and easier buyers.

    We're also able to do a bit more in terms of promotion and marketing for the larger deals. We've recently been testing through seller interviews where we ask questions about the site's history, their growth, risks, potential, etc. This takes time to setup, record, prepare, publish, etc. It wouldn't be worth it for a $10K deal that will likely sell within a week, but it is worth it for a $60K deal that may take a few weeks or longer to close.

    It also helps that we have staff in the Philippines and my partner and I are decent at setting up internal processes. We can structure the process in such a way where some of the manual data collection, reporting, and editing is done at a lower $/hour, while the analysis and decision making is limited and consolidated to the higher $/hour staff. (My partner, myself, our apprentices, etc.)

    It's a complicated problem - I'm interested to hear what other experienced brokers have to say on this.

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    aka "meathead1234" Thomas is a Premium Member
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    As Justin/Joe before me stated, it's certainly an interesting problem. As an initial point, one of the main issues at the lower end of the market, isn't the quality of service we can provide as a broker, it is the general quality of seller/buyer you are dealing with. Generally speaking, the smaller the site, the less organised/savvy the seller. This can mean getting answers to relatively "standard" questions can be difficult and often isn't worth the time. Financials are almost always a mess. We reject around 95% of small deals for various reasons, this being one of them. The more organised a seller - the more likely we are to take it on.

    To answer your questions in order:

    What is the smallest size deal you think you can properly broker?

    We work in the $20k-$4m range, although generally anything under $50k is tricky (the quality of sites below that level tends to be very poor on average).

    I'm not talking about a deal that you will take and list on your website with no additional effort. I'm also interested in what you consider the role of a broker in a website sale to entail. Do you actively identify and seek out buyers?

    We take the same approach to every site we take on - we'll actively seek buyers for every listing. Admittedly smaller sites (<$100k) rarely require much outreach as there is a ton of demand, but this is part of the reason they can still be profitable as we likely have a buyer who is already on our list/database.

    Do you prepare detailed packages of information for potential buyers?

    Yes, for every site we take on, regardless of size. Larger deals do tend to be more complex so there might be more detail/questions/financial analysis but the base is the same for all deals.

    Do you verify the information? In other words, do you do what a broker selling a small manufacturing company would be expected to do to earn his fee?

    Whilst we can't legally warrant anything, but we do verify everything (or at least spot check). It's very rare for a site to get to the offer stage and then fall through due to something we missed in our initial due diligence. Smaller deals tend to have less moving parts so can be easier to verify. If an owner won't provide documentation upfront, we don't work with them. Simple as that.

    Generally speaking, the size of the deal has no correlation to the amount of time the deal will take (especially in the <$500k range). Smaller deals (for us, at least) are lower margin as we try to deliver the same quality service for everything, even if it takes more time than it should. I'm a firm believer in doing things properly, there are too many brokers/sellers out there who cut corners on smaller deals.

    Due to our deal volume (more than anyone else in the 5/6 range), scale and infrastructure we have built up strong precedents across various deals so can often use that experience to make smaller deals (that wouldn't be worthwhile to other brokers) profitable. For example, we have over 200 asset purchase agreements from over the years and have a great lawyer on retainer. We can draft a complex contract (again, we can't provide legal advice but can provide drafts) based on past deals and save buyers/sellers of small deals a lot of money. In most cases, the contract drafting alone (through a lawyer) would cost more than our broker fee - so the value we can provide is very high as it might mean 1/2 hours of legal fees for them vs. 20. There aren't many (any?) brokers who can provide contracts on ~$50k deals that will be as effective as ours (and have been used/stood up in court).

    The general experience helps, too. Chances are, whatever issue/problem/strategic issue that can come up, we have seen it before. This means on smaller deals we can push them through quicker (and hence profitably) where other brokers may spend significantly more time on the same issue. There are also quite a few regular buyers in the $100k range, so once you have built up initial trust, deals at that level can go through quite quickly and efficiently.

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    Administrator Clinton is a Premium Member
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    Quote Originally Posted by David S View Post
    What is the smallest size deal you think you can properly broker?
    David, what I'm seeing is that the more established brokers are now looking at higher and higher cut off points, but there seem to be numerous newcomers wanting to prove themselves and willing to take on relatively small businesses and to work quite hard to place those opportunities. I've no idea what their success rate is.

    However, the more moving parts there are to an online business and the more it's reliant on bricks and mortar elements the more difficult it is for a broker to automate the initial vetting of the business and the higher the business value needs to be for the broker to take it on, IMO.

    Interestingly, I was speaking with a director of US investment banking firm last week, and from what I gather they're targeting some of the businesses that were previously in broker territory. He even sold one $800K business recently which is very unusual for an IB.

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    Quote Originally Posted by David S View Post
    I'm curious to hear from the web brokers that are EP members. What is the smallest size deal you think you can properly broker? I'm not talking about a deal that you will take and list on your website with no additional effort. I'm also interested in what you consider the role of a broker in a website sale to entail. Do you actively identify and seek out buyers? Do you prepare detailed packages of information for potential buyers? Do you verify the information? In other words, do you do what a broker selling a small manufacturing company would be expected to do to earn his fee?
    The smallest sites I've brokered recently were for around $5k-10k, however it was for a client that I'm doing a lot of business with, and the sites were quite simple with adsense revenue, content, good history etc. so they don't require much effort in terms of due diligence, or answering multiple questions by buyers. One such transaction completed last week took only about 3-4 days in total.

    Usually the sites I broker are in the high $x,xxx to mid $xxx,xxx range. However most of my current clients are looking to buy sites in the $10k-$50K range, so I don't have many buyer connections in the higher price ranges yet.

    Generally, on each site I broker I do all the regular due diligence I would if I were to buy it myself. So I check google analytics stats, review revenue screenshots, verify data against outside tools, and do an interview with the seller and a more in depth research on the seller and the website, if needed.

    I usually don't prepare the detailed packages for buyers. In bigger deals it's probably more important, however I think in smaller deals the buyers just want to get the important info first and the main benefits, and they can later do their own research or ask more questions to find out the rest. Additionally most buyers I deal with are quite experienced and adept at doing their own due diligence. I try to simplify the process for both buyer and seller, and reduce any unnecessary long descriptions and forms, so my brokering process is a bit different.
    Last edited by Clinton; 19 January 2015 at 2:31 pm. Reason: Edited by Clinton 19/01/2015

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    Clinton and DomainMagnate, thanks for sharing your insights.

    Quote Originally Posted by DomainMagnate View Post
    However most of my current clients are looking to buy sites in the $10k-$50K range, so I don't have many buyer connections in the higher price ranges yet.
    A key function that people who identify themselves as "business brokers" or "investment bankers" typically perform in selling a bricks and mortar business is to actively identify and seek out potential buyers. It seems, from your answer, that you have an existing client list, which is something I expect is not true of everyone who claims to be a website broker. As a mere observer, it appears that many website brokers are much more passive on the sell-side, primarily providing a place to list websites and wait for potential buyers to come forward. Is my perception correct?

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    Quote Originally Posted by David S View Post
    A key function that people who identify themselves as "business brokers" or "investment bankers" typically perform in selling a bricks and mortar business is to actively identify and seek out potential buyers. It seems, from your answer, that you have an existing client list, which is something I expect is not true of everyone who claims to be a website broker. As a mere observer, it appears that many website brokers are much more passive on the sell-side, primarily providing a place to list websites and wait for potential buyers to come forward. Is my perception correct?
    Can't speak for others, but that's mostly true for relatively smaller deals (under $50k-100k).
    If the site is bigger and in a niche that will have decent end user potential I would seek out potential buyers among main competitors and businesses in the niche that may benefit from buying it. However mostly sites are sold to a group of pre-qualified investors.

    This approach is not unusual, as for example real estate brokers, selling investment grade properties, typically act in the same manner by trying to broker the properties to their established clientele.

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