Why I don’t bother wasting time with brokers · Buy, Build, Sell ™ Businesses

Why I don’t bother wasting time with brokers

Get emailed an IM from a broker that’s an electrical contracting business. I open the email because I have a construction group that would benefit from having such a business as a bolt on (currently sub contracts £6M of works to an electrical contractor so owning one would make a lot of sense). I scroll to the financials and it says EBITDA is £322k. I sign an NDA and request the statutory accounts and management accounts. Last year it lost £95k and this year to July losses are 75k so it’s probably going to be even more loss making in the whole year. I look at the balance sheet and it has a negative working capital position and see it has no cash and uses invoice finance .

I enquire with the broker where is the £322k ? They explain that this is adjusted EBITDA - I ask for the add backs which includes 273k in Director salaries.

I ask the broker who is going to run the business if the directors are leaving ? They say we would have to recruit someone. This is because there isn’t anyone in place to run it. I suggest therefore the directors will have to stay on to run the business until a replacement is found. “Will they work for free during this period?” … No is the reply … No I didn’t think so.

One director is the MD and Operations the other is responsible for sales and bringing business in. “Any idea what the going rate is for an MD and a BD Director?” … broker isn’t sure - I know that combined with benefits this is going to equate to around 250k.

Gross Margins have also declined from 31% to 24% and operating costs have gone up.

I also note the broker added back their fees to the EBITDA which have been expensed to the business. Why is the business paying for the sellers to employ a broker to sell their business ?

Maybe this is why I’ve only ever bought 3 of the 107 businesses I’ve done deals on were a broker was involved - overpaid for poor businesses.

Not all are bad but it’s easier to source a direct to seller acquisition using filters to find only those consistently profitable and long established . In our webinar I ran on Tuesday I cover off exactly how to fill a pipeline with lots of opportunities. In the past year I’ve generated 700+ opportunities to look at.

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