I'm looking at this opportunity, and have been tossing it around for a few weeks. I've consulted with actual important people, but want some ETvice. Guy has a clean firm, an Introducing broker with a good relationship with a good clearing firm. Decent sized book, lots of clients, good website, etc. I have been in the business, and so my licensing is not a problem. Been trading, with reasonable success, for many years, but feel like I want a new challenge. I'm not getting any younger and it would be nice to walk into a turnkey operation without having to go through all the hubbub of starting it myself. Any thoughts about this? Anyone been involved in a deal like this? Having trouble valuing this deal. The guy is a friend and we want to make it so that everyone wins. Thanks for any advice.
When I worked for a good sized telecom company our President often looked at buying others because we were cash rich. He often said to discount the book of clients as they were often inflated. I found he was right when I was given the client list to call on after acquisition. Can you verify this client list in some manner?
Yes, client list has been verified. Its about half a million dollar book, and much of it is diversified with all kinds of clients doing all different things.
Valuation, etc. is beyond my pay grade, however, what do you think a Tobin Tax would do to that business? Exactly! For me, I'd want to stay away until the smoke clears.
I also have purchased businesses in the past. You would be amazing the ways that people can hide expenses and overstate profits. Paying off the books, not paying taxes, not paying for proper licenses and permits, required fines that somehow do not show up until after you buy in, overinflated profit statements, prices/fees to customers that are about to go down due to increased competition, finished or pending expenses that are not shown on the books, judgments against the company that you do not detect, tax statements that were not filed quarterly during the recent few quarters, problems among partners, things held up due to inheritance problems, major customers who are about to leave, wishful thinking and a WHOLE LOT OF OTHER STUFF that even lawyers do not detect. I WOULD ONLY DO THIS AS AN ASSET PURCHASE. "TURNKEY" actually means "TURKEY" I WOULD DEMAND TO KEEP 20-30% out in an escrow account for 2 years, until all potential pitfalls show up, and this can take many months.... AND HAVE AT LEAST 1-2 ACCOUNTING EXPERTS IN BROKERAGE OPERATIONS GO OVER EVERYTHING. They might find out that the numbers are not in line with most other brokerages.
An example - a company does commercial/residential stucco work. You are going to buy the business, and you like that the net profit listed as 25%. Then a knowledgeable CPA points out that the average net profit should be 10% for stucco companies of his size... This is the kind of thing that goes on when buying an existing company. And the owners are amazingly good at keeping critical things off the balance sheets. That "good will" people think they are paying a premium for often disappears when you take over, especially if the current owners/partners leave. And in this economy? Take that money you were planning to invest, and open your OWN IB or try to buy out depressed assets of other IBs who are desperate. The good will you are getting will buy a heckuva lot of advertising and promotion. But honestly? People are looking for buyers or partners now, because they have often lost so much business in this downturn.
TZ is right⦠And the problem with being in the brokerage biz as an owner (Ive been their years ago) is that your constantly dealing with people losing and it will rub off on your good name. The losers ALWAYS blame their broker/brokerage company EVEN if u give them no advice⦠And if your fortunate that the biz makes money-your going to feel bad constantly!