Since its early days, the internet has been seen as the “Great Equalizer.” It promised to level the playing field in many industries, empowering those at the bottom by giving them access to the same resources enjoyed by those at the top.
The way that the internet allows buyers and sellers to connect is a perfect example of how this works. Consider what Amazon and eBay have done for the world of commerce. Consider what Zillow has done for real estate, or what Tinder has done for dating.
For most businesses matching buyers and sellers, the internet has been a disruptive and commoditizing force. One exception is the world of finance, which has done a good job of staving off this trend. Investment banks or broker/dealers have yet to face any significant challenge to their practice of charging exorbitant fees for matching buyers and sellers. However, I see this trend changing. Finally.
In a recent deal, my company worked with a client who hired a broker to help with the sale of their company. In parallel, we used a digital deal platform designed to connect companies with acquirers.
The broker brought in a handful of qualified, interested parties. The platform brought in a few dozen well-qualified parties.
Of course, the platform would do a better job. It’s not rocket science. There are hundreds of thousands of middle-market private equity firms out there. They provide their financial and qualitative criteria, and the deal platform runs its matching algorithm. This is infinitely more scalable than relying on the Rolodex of a single person or firm. And it is promising to disrupt the industry.
BizBuySell is a website that provides a service that is like eBay or Craigslist but for small business owners who are looking to sell their business. The website says it is visited by those looking to buy a business three million times each month and has more than 65,000 businesses listed for sale annually. It is not difficult to see how that type of service is a better option than asking your real estate broker or CPA to find a buyer for your business.
Axial is another great platform that works with more mature businesses and hosts over 20,000 middle-market private equity firms.
Rumors that surfaced in February 2022 say that JP Morgan is working on a project — code-named Project Bloom — that will provide a one-stop digital platform to help start-ups with fundraising. Tools like those promised by Project Bloom empower business founders from all backgrounds, especially those with non-traditional backgrounds access, by increasing their opportunities for connecting with capital sources.
Prior to the launch of these types of resources, business founders in the Bay Area or New York, those from well-networked schools, or former FAANG employees have had an advantage. It was easier for them to connect with capital sources based on their background, pedigree, and connections. Platforms like Axial, BizBuySell and Project Bloom democratize M&A deal-making and startup financing. They open the door to everyone. It’s a win-win because it also gives capital sources a better chance of identifying the diamond in the rough. It makes the market more efficient.
As such platforms proliferate, those who wish to benefit from them will need to understand that the core competencies associated with securing a successful sale have changed. In the past, the process hinged on creating connections, hence the importance of the broker. Now, connections are easy to make. Shoppers on these platforms have a wealth of deals to choose from. As a result, being successful demands that you make your business or deal stand out by differentiating yourself from others.
In a world where connections have been commoditized, successfully consummating a transaction — whether it be related to mergers and acquisitions, or a capital raise — starts with telling a great story. Regardless of your industry, storytelling, and positioning is critical. It is definitely important for tech startups, but even in commoditized industries like IT-managed services, telling a strong story can make a big difference. Although, a strong story does not mean a long story; keep it short, but cover the essentials. Also, keep in mind that a great story is not just fluff. Preparing the financial analysis and presenting the differentiating key performance metrics to support the story is paramount to success.
Once you get your story out there, remember that time kills all deals. Get your ducks in a row and prepare for diligence and Q&A before you launch. This will enable you to move quickly. Additionally, showing that you are buttoned up lends credibility to your business and the process.
The role that advisors play in this new normal obviously will need to change. It will become more focused on implementing a strategy that involves positioning the story, providing the financial analysis that supports the story, navigating the process, and negotiating the transaction. The connection/brokerage role is now handled by the digital platform.
And what should advisors charge for their work? Should this work be billed as a percentage of the deal value? While that topic will surely be debated in the industry, my belief is that this work should be billed for the work it is, regardless of the deal size. That’s why we bill on hourly rates. The amount of work and quality of work does not vary whether it is a $10 million deal or a $100 million deal. Sometimes smaller deals require more attention because they are less mature and less institutionalized.
I also believe that access to these platforms should be granted on a fixed fee basis. The Rolodex is now commoditized, and a broker has lost the right to charge an outsized fee just for making the intro. The playing field is leveled. Finally.
Jay Jung is the founder and managing partner at Embarc Advisors, which brings Fortune 500-level financial consultations to middle-market, SMBs, and startups. Jay has nearly 20 years of experience in M&A, capital-raising, and corporate finance as a former Goldman Sachs Investment Banking Vice President and McKinsey & Company Engagement Manager
