I keep reading that online brokers have lower success rates than local firms, but I'm not sure what that really means. Is it just marketing, or are there actual structural reasons? I run a small manufacturing company and am starting to think about an exit in a few years. Would appreciate any real-world insight.
Brokers
Why online broker success rates differ from local firms
A lot of it comes down to how the deal getes sourced. Local firms often have rlationships with accountants and attorneys in the area, so they hear about businesses before they ever hit a listing site. Online brokers cast a wide net but the quality of the buyer pool can be very uneven.
Agree with brickandmortar88. I sold a retail business through a local firm last year and the buyer came from a referral. The broker knew the buyer's attorney. That kind of thing doesn't happen on a big online platform.
Is it actually true that online brokers have lower success rates? I've seen stats thrown around but never with a clear definition of success. Does it mean closed deals or just listings that get an offer?
I think part of the gap is that online brokers attract a lot of tire-kickers. Local ffirms can pre-screen buyers because they're dealing with people in their network. When you list online, you get a flood of inquiries from people who aren't serious or can't get financing.
That screening point makes sense. So is the locall firm's advantage mostly about buyer qualification, or is it also about pricing and negotiation?
Both. A llocal broker usually has a better sense of what similar businesses in the area actually sold for. Online platforms tend to rely on formulas or broad industry multiples, which can be off for a specific company. Negotiation also benefits from the broker being physically present and knowing the parties involved.
I'd add that that online brokers often work on volume. They may have dozens of listings at once, so the level of attention per client can be lower. Local firms might handle a handful of listings a year and can afford to be more hands-on. That affects success rates because deals die when nobody is pushing them forward.
coffeeandnumbers that matches what I saw. My local broker was on the phone with me almost weekly. I've heard from others who used online brokers and went weeks without an update.
But isn't there a cost tradeoff? Local firms usually charge higher fees. If the success rate difference isn't hugee, an online broker might still make sense for a smaller business.
Fees matter but I think for most owners the bigger risk is a failed sale. If you go with a cheaper online broker and the business sits on the market for a year, that can hurt your credibility with future buyers. A local firm might cost more upfront but get it done.
Also depends on the business type. If it's a very niche company, a local firm might not have the buyer network either. Online platforms can reach buyers anywgere. So the success rate difference might be smaller for specialized businesses.