Software M&A: The Value of Brokers

Going back to the decision of advisor-led versus off-market, is it a decision for the business to make whether you take the broker or the advisor approach, or you build a team internally, like yourself, to go and find those acquisitions? How do you weigh up the two?

I came out of Access in 2015. Since then, I’ve been working with a number of private equity companies, to help their platform businesses find bolt-on acquisitions. What everybody wants is off-market. I often get businesses come to me, they are looking for a broker and I’ll advise them and give them some advice where to go, because there are good ones and bad ones, as there would be in any business. But if you are in a buy and build, and you want to grow quickly, brokers kind of get in the way. A lot of them don’t add much value. At Access, we would get lots of approaches from brokers. And we did buy businesses where there were advisors, but not many, because they would always try and hike the price up. They would give the seller a false expectation of what might be paid. Brokers are good, in the right scenario. For example, a broker is great if you want to sell to a private equity company and you want good advice. But I get regular approaches to find businesses which haven’t got a broker or an advisor. Once they get an advisor, it just becomes a longer process. It’s a much quicker process without a broker. It’s hard for me to rate it, as such, because I much prefer that off-market strategy.

But you have to do the work? You have to network and be in the space, to be able to understand the businesses?

The phrase goes, you have to kiss a lot of frogs. I’m working with a business, at the moment and, in fact, there was a broker involved. I was asked to go and see if I could revive it, because they’d gone away. We did revive it and we’ve just done DD and we found that the detail that the broker provided was miles out. They’d shown a fairly good EBITDA but, in fact, once we’d done the DD, we found that, actually, there was no EBITDA. That is very, very disappointing and very, very expensive. Once we say yes, we’re going to buy, we’re just thinking, in our heads, we’re going to spend £100,000 now on financial and legal due diligence. To find out that the figures you’ve been given, by a broker, are wrong, it’s disastrous. It’s much better to have that direct relationship with the seller. Another business that I’m looking at, at the moment, which I’ve just done a little report on, my report starts with, this looks like a very well-run business; they’ve got a good accountant, they’ve got numbers. We know exactly what they’ve got and they’ve got strong cash in the bank. This will be a good company for us to talk to.