In the lower-middle market (LMM), expertise is often demonstrated through sophisticated marketing strategies, including websites, pitch decks, and social media profiles featuring logo walls, "as-seen-in" badges, and name-dropping tactics. These approaches aim to convey credibility and proficiency, convincing business owners that they are engaging with an experienced M&A advisor.

However, this façade frequently hides a commission-only salesperson who lacks M&A expertise. Their business model is straightforward: no sales, no earnings. This creates a risky misalignment of incentives, where the advisor's main goal is to finalize a transaction at any cost, possibly overlooking the seller's long-term financial interests.

This highlights a significant issue with unqualified intermediaries who use flashy marketing to conceal their true capabilities. For example, take an overly confident "advisor" who couldn't even pronounce or spell "Confidential Information Memorandum." Their ignorance was blatantly apparent. Despite lacking any M&A expertise, this person's fabricated overconfidence and false background—unrelated to mergers and acquisitions—enabled them to mislead unsuspecting sellers with convincing tactics. This serves as a reminder to remain informed and make wise choices when seeking guidance or representation, avoiding the "used car salesman" mentality in any market!

The Structural Risk of Incentive Misalignment

The combination of commission-based pay and lack of expertise creates a detrimental atmosphere. The pressure to close a deal encourages aggressive sales tactics, shortcuts, and prioritizes speed over thoroughness. This often results in hurried timelines, inadequate or diluted Quality of Earnings (QoE) reports, last-minute tax strategies, and overlooks legitimate concerns identified during due diligence.

Sellers are frequently encouraged to advise buyers to "trust the process," a phrase that is often used to instill confidence and patience during complex transactions. This encouragement is particularly prevalent in real estate, automotive sales, and various other industries where negotiations can be intricate and drawn out. However, this advice can become problematic when clear issues arise that might jeopardize the deal or significantly reduce its value.

Sellers must strike a balance between encouraging trust in the process and being transparent about any potential issues that may arise. Open communication is key; sellers should be willing to address concerns directly and provide solutions or concessions when necessary. By doing so, they not only foster a more positive relationship with the buyer but also increase the likelihood of a successful and amicable transaction.

Fuent in Lingo, Lost in the Deal

Beneath the polished exterior lies a notable deficiency in M&A expertise. While many commission-only intermediaries can use industry jargon or highlight past deals, only a select few possess the technical skills necessary to handle the complexities of a transaction. For instance, they often struggle to clearly articulate:

• The transition from reported EBITDA to unlevered free cash flow.

• A justifiable working capital benchmark grounded in historical trends and seasonality.

• The relationship among escrow size, survival periods, and representations and warranties.

• The impact of deal structure, leverage, and tax elections on after-tax proceeds.

These are not trivial mistakes; they are essential components that dictate the outcome of a transaction. Every detail in the transaction process plays a critical role, influencing not only the immediate results but also the long-term implications for all parties involved. If an advisor is unable to effectively model and justify value, it creates a significant risk that the seller will ultimately bear the cost of these oversights.

When advisors fail to accurately assess and communicate the value of a product or service, it can lead to mispricing, misunderstandings, and ultimately, dissatisfaction from the buyer's perspective. This lack of clarity can create a ripple effect, where the seller may find themselves at a disadvantage during negotiations or, worse, may lose potential buyers who perceive the offering as lacking in worth.

Key takeaway: Rushed and poorly executed deals often result from misaligned incentives and a lack of sufficient expertise. Ensure that your advisor possesses the necessary technical skills to safeguard your value and interests.

Don’t Be Sold—Spot the Salesperson, Not the Advisor

1. Insufficient financial expertise: Be wary of advisors who are vague or avoid discussing the details of QoE, working capital methodology, tax strategies, or debt capacity.

2. Slogan-based valuation: Relying solely on headline multiples without linking them to cash flow or specific buyer synergies signifies superficial analysis.

3. High engagement fees: Large upfront fees not tied to concrete deliverables like preparation work, buyer mapping, or CFO-level financial models suggest misalignment.

4. Generic buyer lists: A “spray-and-pray” approach using generic private equity firms with few strategic buyers shows a lack of meaningful connections.

5. Advisor-driven diligence: Encouraging you to skip independent QoE, tax, or legal advice indicates misaligned priorities.

6. Restrictive terms of engagement: Long exclusivity periods, extensive tail coverage, and fees based on gross rather than net results are designed to trap sellers.

7. Poor references: Generic tombstones and testimonials, rather than endorsements from CEOs, CFOs, legal counsel, lenders, or buyers, suggest a lack of substantial execution capability.

Key takeaway: Recognize these warning signs to avoid unqualified advisors. A reliable advisor will demonstrate transparency, expertise, and alignment with your goals.

Assessing Competence: An Essential Step

Before committing to any exclusivity agreement, sellers should conduct a comprehensive, real-time assessment of the advisor's proficiency. This should include an unscripted, live conversation—without the use of slides or scripts—where the advisor is asked to clearly explain:

• The scope of QoE and the specific risks it is anticipated to uncover in the seller’s business.

• The link between EBITDA and free cash flow, and why prudent buyers prioritize cash conversion over exaggerated narratives.

• The seasonality and cyclicality of working capital, along with peg methodology.

• Considerations for capex and leverage, including the difference between maintenance and growth capital expenditures.

• Key deal terms, such as escrow size and survival periods, earnout structures, and tax strategies to maximize net proceeds.

If the advisor cannot clearly and confidently explain these concepts, they are unlikely to safeguard the seller's interests when it matters most.

Furthermore, sellers should move from theory to practice by asking the advisor to identify the top ten buyers that fit their business thesis, explain the credibility of each buyer, and deliver a detailed outreach strategy. A skilled advisor will provide strong relationships and strategic alignment, while an unskilled advisor will rely on generic maketing methods.

Key takeaway: Assess your advisor's abilities through impromptu, live discussions. If they have difficulty articulating crucial concepts clearly, the M&A firm probably won't protect your interests in a transaction.

Transparency and Accountability: Essential Standards

Professionalism demands transparency. Sellers should require written, pre-engagement disclosures that include:

• Capability gaps: Sector expertise, deal size, experience with cross-border transactions, and any outsourced tasks (such as financial modeling, CIM writing, buyer research).

• Conflicts of interest: Any arrangements involving buyer fees, referral fees, or carried interests with potential bidders.

• Track record: A detailed report of the last ten completed deals, including the role, size, time to closure, re-trade differences, and post-closure disputes. References should be chosen by the seller, not the advisor.

These requirements should be outlined in the engagement terms, including clauses for termination and fee recovery in cases of undisclosed conflicts or major inaccuracies. Advisors who oppose this level of transparency reveal their unsuitability.

Key takeaway: Demand full transparency and accountability from your advisor. Written disclosures and clearly defined terms of engagement protect your interests.

Aligning Incentives with Seller Interests

An advisor dedicated to the seller concentrates on net outcomes, such as price, terms, certainty, and tax efficiency. In contrast, a commission-only intermediary often prioritizes finalizing the transaction, which can be disadvantageous to the seller.

• Adopt hybrid compensation structures: Combine a reasonable retainer with a success fee linked to the quality of terms (such as cash at closing, escrow size, and limited reliance on earnouts) to reduce desperation and prevent misaligned behavior.

• Limit exclusivity and tail periods: Implement milestone-based extensions and customize buyer coverage to fit the seller’s industry.

• Prohibit buyer-pay arrangements: Require monthly certified conflict statements.

• Test motivation: Request examples where the advisor suggested pausing or not pursuing a sale to resolve issues that might decrease value. Advisors without such examples are likely prioritizing momentum over merit.

Key takeaway: Ensure your incentives align with your objectives. A mixed compensation model and defined limits ensure that your advisor acts in your favor.

Replacing Marketing with Measurable Evidence

Marketing focuses on performance, and execution can be quantified. Sellers should ask for a "Proof Pack" that includes:

1. Work product: Matrices of anonymized buyer groups, weekly updates on the pipeline with identified contacts, red-lined LOIs reflecting improved terms, and CIM sections that integrate narrative with lender-grade analysis.

2. References: CEOs, CFOs, legal advisors, lenders, and buyers who can attest to the advisor’s execution capabilities.

3. Outreach plans: Identified targets, senior contacts, initial narratives, and a comprehensive timeline.

Key takeaway: Replace flashy marketing with tangible evidence. A skilled advisor will provide solid proof of their capabilities and performance.

Selling a business involves more than just marketing.

Selling a business goes beyond marketing; it is a complex capital-markets event that includes operational, legal, and tax considerations affecting the seller's financial future. Selecting an advisor requires the same careful consideration as hiring a key executive. Sellers must thoroughly assess the advisor’s expertise, identify their weaknesses, ensure alignment, and demand proof of their execution capabilities.

If the advisor's proposal lacks substance without marketing theatrics, the seller has avoided a costly mistake. Conversely, if the advisor demonstrates depth and alignment, the seller has found a true partner capable of translating their business into cash flows, risk, and competitive reasoning—leading to reliable, bankable results.

Key takeaway: Choosing an advisor is a critical decision. Focus on competence, alignment, and measurable results to achieve the best outcome for your business.

In LMM M&A, the environment presents unique challenges and opportunities, requiring a deep understanding of competence.

True competence involves a deep understanding of market dynamics, specific industries, and business intricacies, beyond just credentials or flashy presentations. It includes reading between the lines of financial statements, assessing intangible assets, and managing complex negotiations. Incentives are crucial for motivating all parties to act in the best interests of the transaction.

Aligned incentives foster collaboration, transparency, and open communication, increasing the likelihood of success. When buyers, sellers, and intermediaries share common interests, they are more likely to share information, address issues proactively, and work towards a common goal.

The Equilibrium

In LMM M&A, striking the right balance between nuanced expertise and carefully designed incentives is essential for generating value through informed choices and strategic alignment. Focusing on these aspects enables participants to confidently and successfully navigate the complexities of the lower middle market.