6 Things Your Business Broker Won't Tell You About M&A

Business brokers are skilled at what they do: marketing businesses for sale, qualifying buyers, facilitating introductions, and managing the deal process from listing to close. Good brokers add significant value to transactions, and many deals would not happen without them.

But brokers are not attorneys. They are not CPAs. And their compensation structure creates incentives that do not always align with every aspect of the buyer's or seller's interests. Understanding these structural realities is not about distrusting brokers. It is about knowing what each advisor does, what they do not do, and where the gaps fall. For a detailed comparison, see our guide on business broker vs. M&A attorney.

Brokers earn a commission at closing, typically 8 to 12% of the purchase price. This creates a strong incentive to close the deal. It also creates a weaker incentive to spend time negotiating deal terms that do not affect the purchase price.

Escrow holdback percentages, indemnification caps, working capital adjustment mechanisms, non-compete scope, and earnout structures do not directly affect the broker's commission. But they dramatically affect what the buyer pays or the seller receives. A broker who pushes to close quickly may discourage renegotiation of terms that would benefit their client because the renegotiation delays the closing and the commission.

This is not dishonesty. It is structural incentive alignment. Understanding it allows you to calibrate whose advice to follow on which aspects of the deal. The broker advises on marketing and deal flow. M&A counsel advises on terms, structure, and risk allocation.

The purchase agreement is the definitive document in any acquisition. It contains provisions that determine the buyer's total cost, the seller's actual proceeds, and both parties' post-closing obligations. Brokers are not licensed to practice law and cannot review, draft, or advise on legal documents.

Some brokers provide LOI templates or refer to "standard" purchase agreement terms. But there is no such thing as a "standard" purchase agreement. Every provision is negotiable, and the defaults in any template favor whoever drafted it. Relying on a broker's template without M&A counsel review means accepting terms that may not protect your interests.

The LOI and purchase agreement require legal analysis. This is M&A counsel's domain, not the broker's.

In many transactions, the same broker represents both buyer and seller. This is legal in most states with proper disclosure and consent. But it means the broker cannot fully advocate for either party's interests on price, terms, or deal structure.

In dual agency, the broker facilitates the transaction. They cannot advise the seller to reject a low offer or advise the buyer that the asking price is too high. They cannot negotiate aggressively on behalf of one party without harming the other. This is a structural limitation, not a character flaw.

In dual agency situations, each party's M&A attorney becomes their primary advocate. The attorney negotiates terms on behalf of their client without the conflict that dual agency creates for the broker.

Brokers may help organize the data room and facilitate document exchanges. But they do not manage the due diligence process. They do not review contracts for change-of-control provisions. They do not analyze customer concentration risk. They do not identify employment classification issues or environmental liabilities.

Due diligence has three dimensions: financial (managed by a transaction CPA), legal (managed by M&A counsel), and operational (assessed by the buyer with advisor guidance). The broker supports the process logistically but does not perform the analytical work that determines whether the deal should proceed, at what price, and with what protections.

Buyers who rely solely on the broker's assessment of the business miss the issues that due diligence is designed to uncover.

Asset purchase vs. stock purchase, purchase price allocation, installment sale treatment, and Section 338(h)(10) elections are all tax decisions embedded in the deal structure. These decisions affect the buyer's depreciation schedule and the seller's tax liability by hundreds of thousands of dollars on mid-market deals.

Brokers are not qualified to advise on tax structure. Some may express a preference for one structure over another based on deal experience, but they cannot model the tax impact for your specific situation. This analysis requires coordination between M&A counsel and the parties' CPAs.

The right time for this analysis is before the LOI is signed, when the deal structure is still negotiable. After the LOI, changing the structure requires renegotiation that delays the deal and may create friction.

This is the most important point. Brokers and M&A attorneys are not competitors. They are complementary advisors who cover different aspects of the transaction.

The broker handles deal sourcing, marketing, buyer/seller qualification, and process management. M&A counsel handles deal structure, LOI negotiation, due diligence management, purchase agreement drafting and negotiation, and closing coordination. The transaction CPA handles financial verification and tax planning. Together, these three advisors cover the full scope of a mid-market acquisition.

Buyers and sellers who use all three advisors consistently achieve better outcomes than those who rely on any single advisor. The total advisory cost is a small percentage of the deal value and is far less than the cost of gaps in representation.