Working with Advisors

Whose Side Is Your Advisor Actually On?

When you hire someone to sell your business, you are handing a stranger the most consequential financial decision of your working life and asking them to represent your interests against a professional counterparty.

It is worth knowing exactly whose interests they are structurally set up to serve. Not because most advisors are dishonest — the great majority are not — but because incentives shape advice even when nobody intends them to.

Dual agency, and what California actually requires

Some brokers represent both the buyer and the seller in the same transaction. In residential real estate this is common enough that most people have encountered it. In business sales it happens too, and it deserves more scrutiny than it usually gets.

Because business brokerage in California operates under real estate licensing law, the rules are specific. Under Business and Professions Code section 10176(d), acting for more than one party in a transaction without the knowledge or consent of all parties is grounds for disciplinary action against the licensee. The same section addresses undisclosed compensation — taking any secret or undisclosed amount of compensation, or failing to reveal the full amount of the licensee's compensation to the buyer or seller.

The consequences are not trivial. Failure to disclose a dual agency and obtain consent can result in disgorgement of the broker's compensation and, in some circumstances, rescission of the transaction.

So the question "do you represent buyers as well as sellers?" is not impolite. It is a question the law already expects to be answered.

Why it matters even when everyone is honest

Consider an advisor with a long-standing relationship with a particular buyer — a private equity group they have transacted with several times, who will bring them more deals next year.

That buyer makes an offer on your business. Nothing improper occurs. But there are a hundred small judgement calls in any transaction where the advisor's view could tilt: how hard to push on a term, whether to characterise an offer as strong or merely acceptable, how energetically to pursue other bidders, whether to advise you that a retrade is worth fighting.

None of those decisions is visible to you. You cannot see the counterfactual. And an advisor whose next three transactions depend on a continuing relationship with that buyer is, however unconsciously, weighing something you are not.

An advisor who only ever represents sellers has no such relationship to protect. They still understand how buyers think and what buyers push for — that knowledge is essential — without owing any of them anything that outlasts your deal.

Fee structure is the other half of the question

Conflict does not only come from who else an advisor represents. It comes from how they are paid.

Success fee only. The advisor is paid a percentage of the transaction value at closing. Interests align well on getting a deal done, and reasonably well on price. The residual tension is that an advisor paid only on closing has an interest in a deal closing — which is not always identical to your interest in the right deal closing, or in walking away.

Large upfront retainer, small success fee. The advisor is paid substantially regardless of outcome. This structure can be legitimate for genuinely complex engagements, but it materially reduces the advisor's stake in your result. Be particularly cautious where the retainer is large and the marketing is heavy — that combination has supported a number of firms whose actual business is selling engagements rather than closing transactions.

Tiered success fees. The percentage rises above certain price thresholds, so the advisor's incentive to push for the last increment increases rather than flattening. Structures of this kind, including the various Lehman-formula descendants, exist precisely to address the weakness of a flat percentage — where the marginal gain to the advisor from fighting for another $200,000 is small enough to not be worth the friction.

No structure is perfect. What matters is that you can see it clearly and understand what it rewards.

The questions worth asking

Ask before you sign an engagement letter, and ask for the answers in writing.

• Do you represent buyers in any capacity, ever? Are you representing any buyer currently?
• If a buyer you have an existing relationship with bids on my business, how is that handled and disclosed?
• Exactly how are you compensated — every component, including anything payable by a party other than me?
• Are you licensed in California, and under what licence number?
• How many buyers will you actually contact, and will I see the list?
• Who specifically does the work — you, or someone I have not met?

That last one catches more people than it should. Senior people sell the engagement; the work is sometimes done by someone considerably more junior. It is a fair thing to establish at the start.

Where we stand

Taka Partners represents sellers only. We do not represent buyers, and we do not take compensation from them.

That is a structural commitment rather than a claim about character — which is rather the point. A structure you can verify is worth more than an assurance you cannot.

Related reading: the difference between brokers, advisors and bankers, what a sell-side advisor actually does, and what California adds to a transaction.

Ask us any of these questions directly. We would rather you did.

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