I wrote in my last post the general differences between a business broker and a mergers and acquisition firm. My firm, Compass Point Capital, is positioned smack in between, which can be a challenge. One day we can be talking to an individual buyer talking about discretionary earnings, commute times, and helping with an SBA loan. The next day we can be talking to a public company about EBITDA and free cash flow.
I find it rewarding because I can represent just a few companies at a time. A business broker typically has to have 7 to 10 listings in order to make a decent living, whereas we represent just a few business owners so we can spend much more time on each company. Of course that can work against us too. You can end up working months on a transaction and have it fall through for a variety of reasons. Since we get paid a success fee, that means months of hard work for literally nothing. In fact, sometimes people apply for a job here at Compass Point, and when I describe this scenario they say, “oh, never mind”.
Actually, that is why I started Compass Point. I was doing M&A work for McGraw Hill and just that scenario happened. I worked for a year on one (and only one) transaction and the acquirer, a division of McGraw Hill, decided to change their corporate strategy and called the deal off. A year of extensive cross country travel and hard work was for naught. Luckily it wasn’t based on a 100% success fee, but it doesn’t feel good to not have accomplished anything with all that work. I decided to focus on smaller deals on the west coast where I live, and with my own firm.
Thus Compass Point ended up positioned between business brokerage and M&A. They really are two different worlds, and we have to navigate in both of them. But it’s a good place, I enjoy it.