One word–interloper! When a new mysterious broker enters the transaction and starts to kick up dust, Nasir and Matt take the reins. The seller signed off on the letter of intent (see episode 2), yet this “business broker” serves only friction and challenges by refusing to send financials, whilst demanding more of a firm commitment from the buyer.
Still, just like dealing with any drama causing personality, the guys and our buyer do our best to approach it with a clear mind and cold hard facts. However, with now more than two in this tango, will our guys be able lead us through the muddy waters of this “broker or joker”?
Full Podcast Transcript
NASIR: Welcome to our third episode of Behind the Buy. This is where we’re going to encounter a third-party interloper. Usually, they’re not, it’s the broker episode, right, Matt?
MATT: Yeah, probably our first and only introduction to another party into this series.
NASIR: I have to say, this is the first time that our listeners are hearing — We could have easily predicted this, but this is the first time where our listeners hear a transaction starts to just take a little bit of a different direction than what’s expected. Again, that’s common, and I think we mentioned at the beginning of our series or last episode that you kind of have to walk into these transactions expecting the unexpected to be really agile, otherwise, you’re going to stress yourself out and it’s also going to get in the way of getting a deal done.
MATT: I kind of look at it in the sense of any big event, big transaction, there’s going to be things that are going to pop up that you just have to be prepared for, or prepare as much as you can. Not to throw it back to our wedding analogy, but I look at it as a wedding. You know something’s going to happen leading up to it or on the day of too and you just have to be prepared to fix whatever needs to be fixed and move along and make sure that you hit the finish line.
NASIR: We’re going to play the call here in a second. There’s a couple of calls in this one. Our buyer gives Matt a call without me. Luckily, he recorded that call.
MATT: That’s my favorite call.
NASIR: We do have a vocab review. A couple words that we used in the last episode including Letter of Intent, LOI, I think that’s pretty self-explanatory but a couple of new ones. The first being escrow. What’s escrow, Matt?
MATT: Escrow can mean a variety of things, I suppose. But in this context, there’s going to be money that’s held for a downpayment in this transaction and it’s held in this escrow until we close.
NASIR: It’s usually a third-party, usually unrelated to the transaction. We’ve had experiences where they want us as attorneys, whether it’s buyer’s attorney or seller’s attorney to act as escrow. There are circumstances where that may be appropriate. Typically, we don’t do that because there are things that can happen during escrow and that alleviates any kind of conflict of interest. You want your attorneys to be able to represent you throughout the transaction. The second vocab word again is a repeat from last time which is no-shop provision. This actually comes into play in this call you’ll see because the no-shop provision is a provision that we actually put in the letter of intent where the parties agree that the seller is not going to go out there and “shop around” or go to other potential buyers for their business. That’s going to come up in this call, so let’s take a listen. Did I miss anything, Matt?
MATT: No, it was a pretty normal conversation, these 2 calls, so I think we’re good.
NASIR: Good, okay. Let’s listen in.
BUYER: Hey, Matt. How are you?
MATT: Hey, pretty good, just catching up on some of your emails, in fact.
BUYER: Okay, I thought we could just talk it out. I thought that it would be easier.
MATT: Yeah, definitely. We’re recording, by the way.
BUYER: Okay, got it. I just got off the phone with the seller. I assume you saw on my email that they don’t want to provide any financials until we sign a purchase agreement.
MATT: Yeah, I saw that. Did they explain why that was?
BUYER: I guess he has a broker now, and he’s being advised not to send us anything until we commit to the seller.
MATT: Okay. We aren’t even sure how we’re going to structure this deal until we get his provider agreement. You want some basic financials to get an idea of his liabilities.
BUYER: Yeah, but he’s saying that sometimes, companies come and show how they’re interested in buying, but after spending all this time providing the documentation, they end up just backing out and so he’s really nervous about that and doesn’t want to go through the whole process and then actually it fall through.
MATT: He’s being a little unrealistic with the size of this transaction, frankly. He’s signed a letter of intent, right?
BUYER: Yeah, the day you sent it.
MATT: Okay, well, I find that a little weird that he has a broker now since your partner found him as a seller. We need to remind the seller and possibly the broker that there’s a no-shop provision.
BUYER: Yeah, I really don’t get the whole broker thing.
MATT: Also, the financial information that would be shared is subject to confidentiality per the LOI.
BUYER: He mentioned confidentiality as well and I have a feeling he didn’t even read the letter and he just signed it. He did say that if you want to talk to the broker, you can call him. I have his contact info.
MATT: That’s probably what’s going to need to happen. Let me update Nasir and he’ll probably want to give him a call as soon as possible.
BUYER: Okay, I’ll email you his contact information now.
MATT: Okay, I’ll call you after.
BUYER: Thank you so much.
MATT: No problem, we’ll talk soon.
NASIR: Okay, at this point, Matt gives me a call. We talked about what our buyer just outlined for us and I actually gave the broker a phone call. I didn’t record that call for obvious reasons, but it kind of gave us information. Then afterward, we got the buyer back on the line and talked further, so here’s the second call.
NASIR: Are you there?
BUYER: Hey, Nasir. Just give me one second, hold on.
MATT: Yeah, no problem.
BUYER: Okay, sorry. How’s it going?
NASIR: Great. I think we worked it out. I have Matt here too, by the way.
BUYER: Hey, Matt.
NASIR: I actually just spoke to the broker. It’s a little weird and his role is still a little unclear to me, but I didn’t want to be rude to just straight up ask him like, “What is your role here?” The reason I say that, he didn’t seem really too experienced because I literally had to walk him through the intention of the LOI and the buying process. Again, I don’t know exactly what his role is. I told him we need some basic information to structure the deal and just to confirm the purchase price, all these things. I did express that you’re very interested, you want to close as soon as possible, but given the size of the transaction, I explained to him like in the market, this usually takes at least two to three months to actually turn this around. But I did tell him I think we can move faster than that. I think he understood, but he kept saying he didn’t want to waste his time.
BUYER: Yeah, like I have time to waste.
NASIR: Right. It did make a lot of sense, but I feel like we’re at a good place now with him so maybe the broker’s just trying to show his importance or something, but I did find a way to work this out. Before I forget, he also mentioned that they want back up buyers or something like that. I wouldn’t get too jarred by that because he kind of made it in passing, but don’t get me wrong, I didn’t let it slide, I did remind him about the no-shop provision and all that, but I think we worked it out. What I think will make this go forward is you may have to put something out of pocket, some kind of escrow deposit. I assume that’s not an issue, right?
BUYER: No, that’s no problem.
NASIR: Okay, cool. To really move forward, if you put down a $15,000 deposit, we paper it up, make sure it’s refundable. If you do move forward, it will be applied to the purchase price. If you back out for whatever reason, then, he’ll be obligated to return it.
BUYER: That’s totally fine and frankly, I really don’t even care if it’s non-refundable. I really just want to get started with the process.
NASIR: I figured. We’ll make it refundable though. To do it quickly, we’d usually do an escrow, but you may want to think about not doing one either. I’ve done this with the LOI especially very early. It’s a small amount compared to the whole size of the transaction. I think it’ll also show him that you’re committed to doing this and you’re showing that you’re giving the seller a certain level of trust as well.
BUYER: Yeah, totally. That won’t be an issue at all. You said $15,000, right?
NASIR: Yeah, but it can be lower if you want?
BUYER: No. That’s fine, I was just confirming.
NASIR: Very good. We could do a quick amendment to the LOI and send it over today. Do you want an escrow or no escrow?
BUYER: I think without it is fine.
NASIR: Alright, I’ll send it over to you shortly. Thank you, we’ll talk later.
BUYER: Okay, bye.
NASIR: We’re back and that call was brought to you by our sponsors. Who’s our sponsor this week, Matt?
MATT: Let me look here. Today looks like it’s Pasha Law PC
NASIR: Perfect. I actually use them pretty much anytime I need any kind of Business Legal Services, I don’t know about you.
MATT: How did that go?
NASIR: Actually excellent. I don’t think I can praise them high enough. In fact, some people say I do it too much.
MATT: Sometimes you hear ads on Podcasts where it’s obviously fake but this sounds like it’s a real experience you had.
NASIR: Right. You know, we have to pay the bills somehow. That’s what brings you this podcast.
NASIR: That was kind of interesting. It’s been a while since we heard those calls. What was your first impression, Matt?
MATT: I’ve kind of forgotten about those almost that it seems like everything was going smoothly and then we had this — I would view it from your or my perspective as kind of an unknown guy that just came into the picture. We didn’t know too much about him. I don’t think we even learned too much about him even by the end of that transaction, but he was just a problem causer.
NASIR: Let me tell you about this guy because this wasn’t shared in the call. I’m not even sure if I shared this with the client because it wasn’t really relevant. This person, I could be wrong, but I’m pretty certain that he may or may not have been a broker. He called himself one, maybe he put together some few deals here and there, but really came off as a friend of the family or even a family member of some sort because he was just being overly protective of his client so to speak and really not adding value. Frankly, this happens all the time. It’s not very uncommon. That’s why I call these guys — these guys are interlopers for deals, they just find themselves hanging around and really not adding much to it and really causing issues. This can happen whether it’s a friend attorney that they may have or some business partner or what have you. These guys are not deal makers, in fact, they’re quite the opposite.
MATT: And you never know what you’re going to get. We’ve had experiences where sometimes you have somebody come into the picture that makes things a lot easier.
NASIR: That’s true.
MATT: If you have someone that’s experienced and knows what they’re doing, it just makes the whole process more seamless. I’d much rather have just no one come into the fold compared to this guy because he was causing problems and I think you’ve kind of said this before, not for him, but just in general. It’s someone who knows just enough but not too much where it’s just going to make things much worse than having no one at all. It’s those people that just have a little bit of knowledge or maybe have a little bit of experience, but it’s just not enough and it just kind of — I don’t want to say blew up the transaction.
NASIR: They knew too much for their own good. It didn’t blow up the transaction, but I think that is credit to our buyer and of course — not to toot our own horn, but also ourselves to guide them through that process because I can very easily see a client or a buyer that is a little bit more sensitive to these kinds of things and just — “Look, I don’t want to deal with this, I’m just going to walk away. I’m going to find another urgent care to buy.” The first thing that this broker told our buyer, but also when I got on the phone with him was that, “We’re not going to provide any financials or disclosures until we get a signed purchase agreement.” It’s like, when you start out that way, that’s not how you make a deal. Furthermore, that’s not how deals work. We’re not going to commit to buying your business unless we know exactly what we’re buying. It’s a very basic concept. Very rarely do you have any commitment that’s unseen and maybe verifiable later especially when it’s a small business context. A lot of times in a big transaction, there may be some representations in the beginning that, “Hey, so long as your documentation says X, Y and Z” And they’ve been through this a bunch of times, then it will go through well.
MATT: The one thing too, if you recall the last episode, it just seemed like everything was so easy and it seems like everything was kind of agreed to for the most part and we’re just going to get through this process without any hiccups and then we have this guy come into the picture and it was just a complete 180.
NASIR: I think the lesson here is that when you’re buying a business, and you encounter one of these incidences, whether it’s something that you unexpected or some third party kind of throwing a wrench in the wheel, really, you have to look past that just like in business, don’t take it personal, and that’s what we did here. They were coming to us — They had a concern which is not by the way crazy, which is they’ve heard in the past — and this is true, you’ll have these looky-loos of buyers that just want to look under the hood and go onto the next one. Imagine if I’m going to get into the urgent care business, and one of the best ways for me to learn about an urgent care business is to look at the financials and things like that, and they may be concerned about that. In that aspect, that’s why I think the broker was making a good point just in a very bad and poor way. In response, what did we do? What can we show to the seller that the buyer’s serious? Very simply, let’s put some money down. Let’s put some money where our mouth is and that gives him assurance as to the seller. We even went beyond that and said, “We don’t even need a third-party escrow to hold the money. We’re just going to give it to you directly.” Yeah, you just have to give it back if we back out, but it shows that we trust you and that we’re in it to purchase your business. We’re not just amateurs here.
MATT: And like you said too, credit to our buyer in this situation because she kind of rolled with the punches and was willing to just keep this thing moving along. Like you said, it could be the opposite and they could just walk away, but she was willing to get through this and resolve any of the perceived issues.
NASIR: For the audience, you’ll find that a common theme for this particular client, I would say she’s not atypical in our disposition with our clients, but she did roll with the punches as you said, a little bit better than most, I would say.
NASIR: This was an incident where a broker wasn’t very helpful, but what about — Brokers can be actually pretty helpful for a deal.
MATT: Yeah, like I said before, we definitely had situations where the buyer and seller are kind of moving things along but we had that broker come into the picture and just makes everything sync up and they know the things that need to be done and the decisions that need to be made to keep the transaction going. This call is not necessarily the experience that you’re going to have if you do have a broker that comes into the equation, but unfortunately for her here, that was the case. It can definitely be positive overall as well.
NASIR: I think in our next episode if I recall correctly, we’re going to go over some due diligence aspects of it, but brokers are really helpful at that phase because besides making the introduction to putting people together, that’s frankly the easy part, anyone can do that if you know the right people, if you’re personable and know how to market, that’s pretty easy. The hard part is during the transaction. One thing I’ll find is that when a competent broker’s involved and they are not just an intro maker, but they’re involved in the transaction when the buyer requests due diligence information, they have a knack of getting that information from the seller. Not only that, getting it in an organized way. Little things like presenting it into one folder or Dropbox or organizing it by the request, not getting just a data dump of whatever the buyer’s requested, and those little things. This is advice for a seller and a buyer. From a seller’s perspective, if you want your business to sell at the highest price, make the process as easy as possible. Show that you’re professional. At the same time, from a buyer’s perspective, a seller that’s disorganized, their financials are all over the place, it’s a great tool to actually negotiate, “Look, I’m buying into a mess. I don’t care how much money you’re making, these records aren’t adequate. They may not be accurate, there’s flaws in it. I have to buy this at a discount because of it. Because when I’m buying into it, there’s more unknowns, there’s more to clean up and so forth.” That can be used to the other person’s advantage.
MATT: You’re exactly right. I think the big takeaway from this is if you’re buying in this situation, just assume that a third-party might come into the fold and hopefully, you think that they’re going to keep moving things along but just be prepared in case they’re not. If you’re the buyer and there’s a broker in the picture, like you said, just make sure that they’re well-versed in the transaction. Certain brokers only get involved in certain industries or certain types of transactions. If you’re going to go that route, just make sure that it’s somebody who is experienced in that because it’s really going to help you in the long run.
NASIR: Absolutely. That’s a good point about industry-specific brokers unlike when you buy a real estate — Actually, I guess it’s similar to buying real estate, there are brokers for certain areas whether it’s commercial or residential, whether they focus on certain neighborhoods and so forth, similarly, there are brokers just for specific industries. I don’t know about you, I found that it’s probably more common for a seller to engage a broker than a buyer, but it goes both ways for sure. They definitely work differently, because with businesses, it’s not like you have a public MLS system. There are directories and there are systems like that, but it’s not as uniform. It’s actually pretty difficult if you’re in the market of buying a particular business, finding the right seller because they often don’t advertise it in let’s just say the forms that you would be looking at.
MATT: You bring up a good point too. We even talked about this. Sometimes the broker can be involved in the sense that they — If you’re the seller represented by a broker, sometimes they can find the buyer as well. It just depends on what services they offer, but that’s another option and obviously, that can be extremely valuable because if you don’t have a buyer and they find one, that’s what needs to be done to affect the purchase.
NASIR: I think lastly, I want to make sure we cover that a lot of these brokers are not licensed, many states require them to be licensed, or I should say a few states do. But even when they do, they often aren’t. I don’t have too much of an issue on this because at the end of the day, so long as they’re providing the service and so forth, but definitely states care and it can affect in a negative way commission and things like that.
MATT: I think we always advise — We don’t advise, we end up doing it is looking up the actual broker themselves to see if they are licensed, because it just gives us a little more insight into what their involvement’s going to be in the transaction, I guess.
NASIR: In our next episode, we start getting into the due diligence period prior to escrow, but after this letter of intent. You’ll see that the seller finally does start disclosing information, allowing our buyer to look under the hood so to speak and of course, when you buy a used car, there’s always something, right? That’s something that we’re going to take a look at next episode.
MATT: Definitely, nothing too crazy, but I guess you’ll have to listen in to see for sure.
NASIR: I’m looking forward to next episode. Of course, this is something that we really need from you. I believe we made it a requirement from now on, if I recall, is that right?
NASIR: We definitely made it a requirement as in exchange for listening to this show, you have to leave a positive 5, 10-star review on all applicable platforms, especially, I would say iTunes, Google Podcast and Spotify, and yes we’re on Spotify as well.
MATT: Actually, I’m looking at our Spotify reviews and it looks like the broker from this transaction actually gave us a 5-star review.
NASIR: That shows you that’s how good we are. It is out of 50 stars, but still.
MATT: Yes, I guess I gave a little too much insight into how that transaction ended up.
NASIR: Very good. Then, of course, visit our social media, we’re active on Twitter, Instagram, Facebook and pretty much everything. Definitely feel free to engage us, leave a comment and like our post of course. Most importantly, submit your questions and comments. We want to hear from you whether it’s what we’re going to cover on our next episode or if you have questions about this episode, drop us a line, you can send it via email or social media. Email is firstname.lastname@example.org.
MATT: Yeah, please do.
NASIR: I think that’s it. Thank you for joining us.
MATT: Yup, keep it sound, keep it smart.