So I had a call with a broker yesterday about selling my small specialty food distribution business. We do about $1.2M in revenue, decent margins, but not a sexy tech company. The broker basically told me that my niche is 'too small and too niche' and that I'd be lucky to get 2x earnings, if I can even find a buyer. He kept pushing me to list with him at a steep discount. I've talked to one other broker who said the opposite. Is this a common tactic? How do you tell if a broker is just trying to lowball you? Feeling pretty discouraged.
Brokers
Dealing with a broker who claims your niche is worth nothing
Yes, it's a tactic. Some brokers specialize in volume, so they want a quick sale at any price. Find someone who has actually sold businesses in your niche.
2x earnings sounds low for food distribution. What are your margins like? Are you including inventory in that? I sell HVAC companies and the multiples vary wildly by niche.
Also, ask him for his last three transactions in your industry. If he can't produce them, walk.
Margins are around 15%. He didn't even ask about margins before throwing out the number. That's what got me suspicious. I'll ask for his track record, thanks.
I love how these guzys act like they're doing you a favor. 'Your baby is ugly, but I'll take it off your hands.' Classic.
15% is solid. He's either lazy or trying to flip you to a buyer he already has lined up. Either way, don't sign an exclsive with him.
Just went through this. The first broker I talked to said my landscaping business was worth 1.5x. The second one sold it for 4.2x. Don't let one guy seet your price.
What did the second broker do differently? Asking for a friend who is also being told his niche is worthless.
He actually marketed it. Took professional photos, wrote a real CIM, and targeted buyers who already owned complementary businesses. The first guy just slapped it on a listing site.
Brokers are like realtors. The bad ones want a quick commission. The good ones build value. That said, maybe your niche really is tough? What's the buyer pool?
PixelatedPineapple fair question. It's specialty food distribution, so buyers are either larger distributors or private equity rolling up the space. There are definitely buyers, but it's not a slam dunk. I just don't think it's 'worth nothing'.
PE loves roll-ups. If you have recurring customers and a solid management team, you can probably get 4x+. That broker is full of it.
Also, dont sign anything exclusive. Let two or three brokers pitch you and compare their approaches.
And don't fall for the 'I have a buyer' line unless they'll put it in writing.