The Cost of Buying or Selling an Agency without an Advisor

I received a phone call from an attorney in early 2024.  He was defending a client in a lawsuit filed by the buyer of the client’s agency.  The attorney pleaded with me to take up the task of being an expert witness for his client.  I relented because I liked the attorney and because I’m naturally an advocate for agency sellers.

In an effort to avoid boring you with details, let me run down what I discovered:

1. The buyer contacted the seller directly.
2. After an initial round of communication and data sharing, the buyer made an offer, they negotiated and agreed on terms.
3. Months passed with lots of email communication, data sharing, and a renegotiation with a closing occurring over 7 months from initial contact.
4. The purchase agreement, which was drafted by a general business attorney, was poorly written and failed to properly define some key terms that were fundamental to the legal dispute.
5. The buyer, in spite of 20+ years of experience in the industry and expressing a high level of confidence throughout the process, was woefully inexperienced in M&A.
6. The seller, in spite of 20+ years of experience and having originally bought the agency, was nervous and eager to please the buyer, particularly as the process dragged out months longer than expected.

The lawsuit was filed two and a half years after the sale occurred and finally went to trial FOUR AND A HALF years later.  After a two-week trial, the seller was vindicated with a jury rejecting all four of the buyer’s claims and awarding the seller unpaid consideration and legal fees.  In the words of the attorney that hired me, “Total victory”.  My testimony was last, the shortest, and frankly the most impactful because my experience allowed me to perceive, understand and articulate the issues clearly.

The case was Dead-on-Arrival but took 4.5 years, hundreds of hours of time, likely $100k in legal fees, and an expert to shed light on the truth to close the casket.   I celebrate the truth winning the day but don’t relish in the anguish and expense of what the parties went through.  The sale of a business is called a “transaction” because it should be an event, not a 7-year long painful experience.

A million times I’ve shared the value of using an experienced M&A advisor, but ego and ignorance are thick defenses to break down.  By not using an experienced intermediary, would you say that the parties:

• Saved money?
• Saved time?
• Built a better rapport with each other?
• Achieved what they hoped to achieve post-closing?
• Had a more successful transaction?

The obvious answer looking at the case was a resounding “NO”, but these are the exact reasons buyers and sellers forgo hiring an advisor.

Nobody came out ahead financially except the attorneys.  What should have been a few month process became a 7-year nightmare.  Having no rapport with the other side would have been better than a contentious lawsuit.  Instead of spending more time with family, the seller was dragged through an extensive legal process.  Instead of focusing on growing the agency, the buyer was anguishing over the deal and ended up doubling down on his losses.  No one won.

What do you think the parties would say if I asked them if they think they should have hired a transaction advisor, in hindsight?

This story is not an anomaly.  We get calls weekly from parties that pursued or closed a deal without an advisor.  You don’t know what you don’t know and that is the problem.  Industry or business experience does not equal M&A experience.

I share these kind of stories as a learning lesson.  Someone else paid the price for you to hear this message.  My team and I have helped with well over 500 M&A transactions and have evaluated thousands of agencies.

We paid the price to gain the knowledge that you can leverage.  Take advantage of it by hiring us to help you with an M&A transaction.

Posted by:  Michael Mensch, Founder and CEO

Direct: (321) 255-1309

P.S.  Please don’t call me to be an expert witness in a legal dispute.  I prefer helping people do it the right way vs pointing out what went wrong.