Last week I got a call from a business owner who had decided to sell his business. He and his partners were beginning the beauty contest phase of selecting a firm to represent them in the sale. His partners had begun discussions with a merger and acquisition advisory firm. He had followed up with this firm prior to calling us and had questioned them on several issues. He shared his findings with me and asked my opinion. Generally I subscribe to my old IBM training and will not disparage a competitor, however, some of the answers were alarming to me so I elected not to withhold my opinions.

The first red flag was that this competitor required a large up-front engagement fee. I certainly have no problem with Merrill Lynch or Goldman Sachs charging their up front fees to their fortune 1000 clients. These firms are a proven commodity with a proven process. Their clients feel confident that a liquidity event will result from their work. A monthly fee is a more accommodating approach for smaller clients whose cash flow would be strained by a large up-front payment.

We have had many prospective clients approach us after unfortunate experiences with these big up-front fees. In one recent case, we were brought into a holding company who had acquired one of our sell side clients. Another division had engaged an M&A firm to sell one of their subsidiaries. After a $40,000 up-front payment and over four months, not one prospect had been contacted. Another common result for clients of these up-front fee firms is a beautiful, bound, 40-page book of boilerplate compiled by a junior level analyst. Unless this is accompanied by a concerted sales and marketing effort, this book will become a very expensive coffee table book.

Think of evaluating the performance of your M&A firm like you were evaluating a salesman selling your company's product. If you are not getting status update reports or pipeline reports indicating who has been contacted and what progress was made, you are not managing your business sales process.

Another red flag we see with these up-front fee firms is a 4 or 5-year exclusivity period. Our firm will not take an engagement unless it is exclusive, however, locking a seller in for 5 years is unconscionable. Here's what that says to me. Some of the less honorable firms are marketing machines who target business owners with their 6 letters per year mailing campaigns. These campaigns are designed to get the business owners to their beautifully orchestrated seminars for potential business sellers. The presenters are very polished speakers. I doubt that these wonderful presenters have actually closed a business sale. Their objective is to lock up 3 or 4 businesses per seminar with a $40,000 book and to put them into their growing inventory of 5-year exclusive engagements. These businesses are not actively sold, but are passively presented in mass mailers and on Internet sites. I can't tell you the number of times we have been contacted by firms that are unfortunately the victims of this approach.

I am just getting warmed up. Let me expose, forgive my French, the biggest load of crap presented at these seminars.