Your client tells you he’s thinking about selling. You know someone. You make the introduction, because that’s what a good advisor does, and because the client asked.
Then the process runs for nine months and either produces a closing or produces a mess, and either way your name is on the introduction.
Five things worth verifying first. None of them takes long, and the first one eliminates more candidates than you’d expect.
One: whether they’re allowed to do it
Selling a business is often the sale of securities. When the transaction is structured as a stock sale rather than an asset sale, the intermediary is effecting a transaction in securities, and that has historically meant broker-dealer registration.
Most business brokers are not registered. For a long time this was a widely ignored problem with an occasional enforcement action attached.
That changed in March 2023, when Section 15(b)(13) of the Securities Exchange Act created a federal exemption for M&A brokers. It’s a real exemption and it covers most lower-middle-market work, but it has conditions, and the conditions are where the problems live.
The business has to be an eligible privately held company: no class of securities registered under Section 12, and in the fiscal year before the engagement, either under $25 million of EBITDA or under $250 million of gross revenue. Nearly every business your clients own qualifies.
The intermediary can’t take custody of funds or securities. Can’t provide financing to the buyer. Can’t assemble a group of buyers to acquire the business. Can’t represent both sides without written disclosure and consent. Can’t be subject to statutory disqualification.
And this one, which gets missed constantly: the buyer must both control and actively operate the business after closing.
That last condition matters more than it sounds. A sale to a passive financial buyer who installs a management team and doesn’t operate arguably falls outside the exemption. At the size your clients are, most buyers are searchers, independent sponsors, or operators, so it’s usually fine. But it’s a condition to verify at the letter of intent, on the specific deal, not an assumption to carry.
There’s also a separate question the federal exemption doesn’t answer, which is whether the intermediary’s home state tracks it. The federal exemption is federal.
Ask the intermediary how they handle it. Not as a gotcha. The answer tells you a great deal about whether the person has thought about their own compliance, and someone who hasn’t thought about their own has probably not thought about your client’s.
Two: what happens if real property is part of the deal
Many of your clients own their buildings. When real property conveys with the business and the intermediary is paid a commission tied to the sale price, real estate licensing law applies.
In Texas, that’s the Real Estate License Act, and the analysis is separate from the securities question. An intermediary who has thought about broker-dealer registration and not about this one has done half the work.
There are clean answers available. Exclude the real property from the fee base. Bring in a licensed broker for that component. Hold the license. What you’re checking for is whether they know the question exists.
Three: how they’re paid, and what “total value” means
Ask to see the fee definition in the engagement letter. Specifically, ask what total transaction value includes.
The honest definitions include cash at closing, assumed or repaid debt, the face value of seller notes, earnout at maximum achievable value, retained real estate leased back to the buyer, and consulting or non-compete payments to the seller above fair market value for actual services.
That definition is the single most litigated term in advisory agreements, and vagueness in it is not accidental. A client who signs an engagement letter defining total value loosely can find himself owing a fee on an earnout he never collects.
While you’re there, look at the tail and the exclusivity. A twenty-four month tail on buyers actually introduced during the engagement is reasonable and standard. A tail that captures any buyer, introduced by anyone, for three years, is not.
Four: whether anyone is doing the preparation work
Ask what happens between signing the engagement and going to market.
If the answer is a few weeks and a marketing package, your client is being listed rather than represented. That may be fine for a $600,000 business. It is expensive for a business worth $4 million, because the work that determines the price happens before a buyer sees anything: recasting earnings, documenting add-backs to transaction level, understanding customer concentration, reducing the parts of the operation that only run because the owner is standing there.
You already know whether your client’s books will survive a buyer’s scrutiny. You’ve been looking at them for years. If the answer is no, and the intermediary’s plan is to go to market in three weeks, you’re watching a price get set.
Five: who is actually going to do the work
At the low end of the market the person who pitches is the person who does it, which is good. Higher up, the person who pitches is a managing director and the person who does it graduated in 2023.
There’s a specific version of this worth asking about. When your client’s buyer goes quiet in week nine of diligence because their lender has a question nobody’s answering, who makes that call? That is where deals die, and it’s not a task that delegates well.
One thing not to screen on
Fee percentage.
Your client will compare quotes and the lowest one will look like the obvious answer. It usually isn’t, and the reason is arithmetic rather than loyalty.
Take a business that sells for $3 million. An intermediary charging 5% earns $150,000. One charging a declining scale earns something closer to $240,000. The difference is $90,000, which sounds like a lot until you consider that the preparation work described above routinely moves the sale price by more than 10%. On a $3 million deal, a competent process that produces $3.4 million instead nets the seller $250,000 more after paying the higher fee.
That’s not an argument that expensive advisors are better. Plenty aren’t. It’s an argument that a fee difference measured in tens of thousands is the wrong variable to optimize when the outcome varies by hundreds of thousands, and that a client who chooses on price alone is solving the smaller problem.
The useful version of the fee question isn’t how much. It’s what’s included, whether the retainer credits against it, and what the total-value definition captures.
What this is really about
You’re not being asked to underwrite the intermediary. You’re being asked to make an introduction, and introductions carry your judgment whether or not anyone says so.
Five questions, one conversation. The intermediary who answers all five easily is telling you they’ve built something. The one who’s never considered the first two is telling you something as well.