I had an interesting conversation with an old friend the other night at a local town meeting who works for a national  business broker chain (VR).  I have dealt with them on and off over the years. They are kind of difficult to deal with because they have very small deals and their online interface is very cumbersome to work through.

Anyway, I had maybe worked with my friend a couple of times over the years on deals and hadn’t seen him for a while. At the end of the meeting I asked him how the deal business was. And he said it was OK and we sat around and talked a little bit about the deals that he and I had worked on In the past. And he passed to comment (in front of the group) that kind of indicated that we had any hadn’t done any deals together because I wasn’t willing to pay up to get the deal.

Now we had only worked on maybe two deals together. The first one I never got past the information stage and the second one was a turnaround deal that I found on my own without him and just wanted to ask his opinion. So he had no real reason to think that I was some sort of cheapskate except by talking to me. And somewhere along the line he had probably never shown me any deals because he had me pigeon-holed.

I was thinking to myself later that maybe we had a few conversations where I let on about how I structured my deals and how much I was willing to pay. Now this isn’t the first time that I’ve encountered a broker who thought I was tough to deal with because I wasn’t going to pay full price. But the other side of the coin is that my friend the broker would rather me pay too much rather than get a good deal. So, friend or not, this is how brokers think.

In any case I never really did much business with VR business brokers because their deals are a little too retail oriented. But it is important to know how you come off to brokers when you start to have extended conversations with them over the phone. I am honest to a fault, which may be a bad idea. My theory was that there is no point in dealing with a broker who doesn’t understand my mission and won’t assist me in my quest to buy a company at a reasonable price. So I let them know how I work and if they don’t like it they can say so.

There was another broker out of New Jersey when I was living in New Jersey, and I would be looking for their deals all the time. A while back they used to call me a “leveraged buyer”. Which was true. I was the guy who was going to borrow heavily to do the deal. They didn’t necessarily want that – they wanted the guy who had all cash at closing.

Then when it came to seeing how they’re actually selling the deal it turned out they were structuring a heavily leveraged deal themselves to sell it to the public. Their deal would have the buyer borrowing 75% of the money. It was practically the same as I would do. The only difference was that I would be loading up more on seller paper. The reason they structured their deals ahead of time was so that they had the seller on board from the very beginning. That way they didn’t have to figure out of the seller would accept a deal or not. They would propose a price and structure for him up front that they thought would work. It was actually a very smart way of doing things to make sure you had a serious seller.

The lesson to be learned here is never to assume anything. Brokers come in all sizes and shapes and so do sellers. Do not assume that you’re pricing is too cheap or that your deal structure is too leveraged or that the broker is going to reject your proposals out of hand.

Brokers are, however, prone to be on guard for those buyers who want something for nothing. So, if I have a piece of advice here – it is when you are dealing with brokers it is best to avoid the appearance of trying to steal the company. Be a little cagey when divulging your structures, valuations and deal theories over the phone. Talk in ranges of numbers never in specifics. We do 3x-5x multiples, that sort of thing.