6 ways to get more value from Singapore business brokers
BY ANTHONY COUNDOURIS
A business own has two options when selling with their business. Sell directly to a buyer, or go
through a business broker.
It is important to understand that brokers do more than provide a listing. A broker has to create
a buyer profile, value the company and its intangible assets, find a willing and able buyer, and
negotiate the terms and conditions in the contract of sale.
If you go through one of Singapore’s business brokers, here are some tips to ensure you see more
value.
Pay their upfront fee
At first glance, paying upfront fees to cover marketing and entertainment fees may seem risky.
However consider this: if you pay for something, you can expect something.
If a broker asks for no upfront fee, they are either very confident they can sell the business quickly,
or they are not planning to actively push the deal to buyers. Decide which one.
If you are concerned the broker may not spend the fee prudently, ask that expenses be paid
in stages. Ask for fortnightly sales reports which demonstrate how the sale is progressing and
continue paying expenses based on performance.
Ask for fortnightly sales reports
Reports are invaluable. The report lists the names of prospective customers, where the negotiation
is at and the likelihood a prospect will buy. A prospect is qualified as an individual or company
willing and able to buy the company.
In many cases, the buyers cannot be found in Singapore, and must be sourced from abroad.
The market of buyers is dynamic and subject to movements in currency and the money markets.
Demand and supply can shift rapidly from month to month. The broker should report trends and the types of objections raised by the buyers, and adjust the campaign accordingly.
Depending how quickly you want to sell, you may need to reduce the sale price to garner more
interest.
A healthy lead count approximately 15-20 leads. From the 15 potential investors, you can narrow
down to four buyers who will engage in due diligence. Of the four, one or two will make an offer. If
you identify prospective buyers, contribute the leads to the broker. Let the broker manage investor
relations and present a unified front.
If you have not paid an upfront fee to the broker, it is unlikely you will receive reports. This puts
your sale at a disadvantage. If you have paid and reports are not forthcoming, look for another
broker.
Favour an exclusive agreement
In markets like Singapore, buyers seeking to procure businesses valued between S$1-2 million
are in short supply. At any one point in time, there is only a handful of willing and able buyers. It is
better to form an exclusive agreement with a broker, so the buyers collectively are exposed to one
unified campaign message.
This will give the broker an opportunity to build trust with the buyers – key to closing the sale. If you
secretly commence negotiation with a separate list of buyers, you run the risk of jeopardising a sale
with a real buyer. It is unhealthy and damaging if the seller begins competing with the broker to sell
the firm.
In bigger markets, a non-exclusive agreement is suitable because the number of buyers is greater.
Ask for a written valuation
The valuation is the most subjective and difficult task of selling a business.
There are several ways to value a business, and each method demonstrates different strengths of
a business. Brokers choose an appropriate valuation method, justify their choice and final provide a
computation.
Common valuation methods include:
• asset valuation;
• discounted cashflow;
• entry cost;
• industry valuation;
• EBITDA.
There are intangible factors which may be taken into account. These include brand, exclusive
licenses, IP and the owner’s exit strategy.
Avoid fancy marketing
When pitching to investors, a broker will not over do with superlatives. Investors are far more
motivated to buy a company based on accurate financials, not smart looking powerpoint slides.
It is far better to put energy into writing a solid annual financial report, with a short investor
summary. Smart presentations will hold little sway in the purchase decision.
Be wary of brokers who are not aware of the concept of the dual agency. Dual agency is not
common in Singapore, but is gaining traction internationally. Dual agency refers to situations
where the broker represents both the seller and buyer. Quite often, the buyer does not have
representation, and in such circumstances, it is beneficial to all parties if the broker represent both.
Normally the broker will disclose this position.
Pay their commission
Selling a business is far less transactional than real estate, especially in the S$1-2 million range of
sales, where both the buyer and seller are ‘unsophisticated’.
Unlike real estate sales, selling a business is more complication. The sale of a business is less
transparent and attracts fewer buyers. The assets are often intangible, and comparing business for
sale more difficult. A committed broker needs to work very hard to educate and build trust among
all parties to close a deal.
For this reason, most deals do not go through despite best intentions.
If you decide to engage a business broker, be careful negotiating down their commission. The
result can put the sale of your business at a disadvantage.
For example, if the broker has two sellers, and commissions from both sellers are equal, the broker
will match the seller most suited to the buyer. Long term this is the best outcome, especially if the
buyer and seller are to work together post sale.
However, if the commissions from the sellers are unequal, the broker will push the deal with the
higher commission, even though it may not be the best match.
If you are serious about selling your business, reward performance. What gets rewarded, gets
done.
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About the author
Anthony is the founder of an accounting and analytics firm Anthony is obsessed with helping start-up companies incorporate, conduct industry analysis and develop positioning. He has ten years experience in
media and marketing, and was founder of Firestarter, a digital marketing agency.
Firestarter was acquired by Novus Media in 2010.
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