I was recently working with a client in the financial services business and we had a conversation about a business broker he was working with. It turns out the firm (my client) had purchased five businesses through this particular broker and all of them had turned out to be a bust financially.
Two years after buying the businesses he had lost over 80% of the volume that the firm had purchased. While I was quizzing him about the specifics of the poor purchases I came to find out the broker he was working with was representing both the buyer and the seller.
In my opinion there is little a business broker can do that is more unethical than representing both sides of a deal. The nature of a sales transaction is such that the interest of the buyer and seller are at odds with each other. I don’t see how one person can represent both sides and have a success fee paid by both parties.
This particular broker never insisted that my client, the buyer engage adequate legal representation during the deals they brokered. As a result this owner has spent close to seven figures in legal fees that were likely not necessary had he had adequate legal representation. He also would likely have way more than 20% of the sales he bought or would have paid much less for the businesses.
There’s many reasons buyers have separate representation from sellers. They have very different interests. A good deal lawyer and intermediary will not only protect the interests of their clients but the transaction itself will have a better chance of ultimately being successful.
Please, please, please don’t ever deal with a business broker/intermediary who wants to represent both sides of a deal. It almost never works out well for either party. If you’re buying or selling a business, you want your transaction to be successful. Having separate representation go a long ways to make this wish a reality.
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