Buying a business involves certain legal aspects, such as creating a confidentiality agreement, setting up escrow, conducting research on current cash flow, and more. Keeping track of all these tasks can be challenging, especially for first-time business buyers. Therefore, investors often hire a Buy-Side Business Broker who handles all these tasks on their behalf.
As the global ecommerce sales crosses over $5.7 trillion, online businesses have become a valuable investment. Now, most investors want to acquire an already established ecommerce company because it is easier to manage an established brand, rather than starting from scratch.
1. What Is a Buyer-Side Business Broker?
Buy-side brokers are associated with a business brokerage or work independently to assist buyers through the acquisition process. They conduct market research, find promising business listings, and negotiate deals. In short, they set up the entire buying process and educate the acquiring party to help them make the right decision.
The Role of Buyer-Side Business Brokers
Buyer-side agents benefit from the transaction, as they earn a commission after successfully closing a deal. They follow a step-by-step process:
When the buy-side broker acquires a client, they research and identify promising companies and their market value. They directly reach out to selling parties or contact sell-side intermediaries.
After making a list of businesses for sale, they filter out prospects based on the ones that align with the buyer’s objectives. As a result, the buyer doesn’t have to invest time and resources on the wrong targets.
A buy-side business broker is required to provide a complete assessment of the listed prospects (businesses for sale). Therefore, they contact the prospects on the buyer’s behalf and solicit important information to review, such as net profit, revenue generation, cash flow, current customers, and more. Based on this information, agents can evaluate the strengths and weaknesses of each business.
This analysis plays a major role in making the correct buying decision because investors can eliminate the risks of purchasing a small business with a high chance of failure.
A seasoned buyer’s broker highlights the positive and negative points of each investment opportunity. Buyers can then review their options and determine if the prospect is scalable with growth potential.
Once the buyer has identified the right company for investment, the buyer’s broker contacts the business owner- or the seller’s broker- to negotiate the deal. Next, they draft a letter of intent (LOI) that is signed during negotiations to ensure both parties conduct due diligence and other relevant checks before closing a deal.
During negotiations, the agent advises the buyer on the optimal structure and other terms to include in the final agreement. They propose the deal’s terms in a certain way to make it a win-win situation for both parties.
In addition to these tasks, buyer-side agents also work on the following:
- Payment method (upfront or deferred)
- Deal’s non-compete requirements
- The timetable of due diligence and deal closure
Due diligence (DD) is investigating a company’s legal, fiscal, and financial charts to learn its sales figures, shareholder structure, and economic transgressions (corruption and tax evasion). Knowing these facts helps buyers in making the correct investment decision.
After the LOI is signed, the broker creates a DD checklist to ensure every aspect is covered in the investigation. The broker either conducts DD on their own, uses its firm’s investigation resources, or hires a third-party company.
Once DD is complete, the broker shares the report with the buyer. They also offer advice on whether or not it is wise to invest in the business, based on the report’s findings.
Legal Agreement and Counsel
If the prospect has received the green signal in DD, the buyer’s broker drafts the legal documents. They create the Asset Purchase Agreement (APA) that finalizes the terms and conditions related to the purchase.
Some buyer-side agents also provide legal counsel if they are qualified to do so. Otherwise, the buying party has to acquire legal advice from a third-party service provider. If the buyer is using an external legal counsel, the lawyer can only advise upon the following:
- The size, structure, and timing of the asset’s payment.
- Non-compete terms and conditions that protect both the buyer and the seller.
- The list of transferable assets.
- Post-sales support offered by the seller.
- Seller’s debt, lawsuits, and pledges against the business.
The buyer’s agent can include more factors in the APA, depending on the company’s condition and the lawyer’s advice.
Once the APA is signed by both parties, the buy-side business broker opens an escrow to complete the transactions. The broker is also tasked to review the inspection period and complete any additional sale obligation, like post-merger integration, agreed upon in the contract.
2. Reasons to Hire a Business Broker to Buy an Online Business
The right business broker improves the acquisition process for new and experienced buyers. Hiring a buyer-side agent is a great decision due to the following reasons:
- The agent works on the buyer’s goals, interests, and objectives to find the correct business listings.
- The agent has access to a large network of buyer’s broker and seller’s broker intermediaries. As a result, they know about online businesses up for sale that may not have appeared on the official listings.
- The agent saves the buyers time by researching each aspect before beginning the acquisition.
- The agent has in-depth market knowledge that comes in handy for evaluating the strengths of businesses belonging to various niches.
- The agent negotiates the purchase price and makes sure there are no hidden costs to prevent the buyer from overpaying.
- An experienced agent can advise about the deal’s terms and how buyers can benefit from them during the post-sale process.
- After conducting numerous business inspections, the agent knows which areas need thorough investigation.
- The buy-side business broker assists in transactions and asset transfers that can be difficult to handle independently.
3. How To Pick The Right Business Brokers?
A well-experienced broker tailors each deal to meet the buyer’s objectives and interests. Therefore, the buyer must choose a highly reputed brokerage to ensure they are paired with the right broker.
Buyers should also learn which services will be provided by the agent to eliminate conflicts in the future. Another element to consider is the broker’s experience. An experienced broker is more likely to understand processes and market conditions and negotiate deals.
So, the buyers need to find a broker who is trustworthy, experienced and provides advice that lies in the buyer’s favor.
4. Wrapping Up A Deal
A buy-side business broker is an independent agent or associated with an acquisition brokerage. They know how to assist investors in finding and acquiring an online store that is profitable in the long term. To do this, the agent identifies potential prospects and contacts current owners to begin the acquisition process.
Once the buyer and seller reach the negotiation stage, they create an LOI agreement to begin negotiation and due diligence. After completing the investigation, they set up an escrow to start the business transfer. Considering this, investors can significantly benefit from a buyer’s broker, as they save time and assets.
Looking for a competent brokerage? Contact Ecommerce Brokers to get valuable assistance in finding well-researched listings. With their expertise, you can conduct fair negotiations and close the deal in no time! You can also sign up for the Elite Acquirer’s package and benefit from up to 50% financing on deals. Get in touch now!
Author Bio: George Moulos
Forbes 30 Under 30 2020, CEO of Ecommerce-Brokers.com
I own an online M&A firm called www.Ecommerce-Brokers.com and we have 11 years experience helping buyers and sellers acquire and sell millions of dollars worth of online businesses.
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