Choosing a Sell-Side Advisor Series: The tail period and the buyer list

When working with a sell-side advisor to sell your business, particularly in the veterinary and dental industries, it's essential to have protections in place if the relationship does not result in a sale. A key component of the client-advisor relationship is the engagement or listing agreement. Among the most crucial elements of this agreement are the sale or tail period and the buyer list. It is standard practice for sell-side advisors to include a tail period in their contracts, which allows them to earn a commission if the business is sold to a buyer they introduced after the contract has ended. This tail period typically spans 12 to 18 months. The effectiveness of this provision, however, depends heavily on the quality of the buyer list provided by the advisor.

Unfortunately, all too frequently, advisors may provide a list that includes all potential buyers, even those who were not genuinely engaged or who did not respond to initial outreach. To protect your interests, it is important to ensure that the buyer list you receive includes only those with whom the advisor has had substantial discussions and meaningful engagement. This means excluding buyers who were only briefly contacted, had unanswered phone calls or emails, or more egregious - who were not contacted at all.

Understanding why this distinction is crucial is essential. In the following article, we will discuss why having a precise list of actively engaged buyers is a critical safeguard in your contract with a sell-side advisor.

Focus on Quality Engagement

A sell-side advisor’s role extends beyond merely identifying potential buyers; it involves fostering meaningful interactions and negotiations. Some advisors we have encountered, who provide a list of all potential buyers including those with no substantive interest or response, fail to capture the essence of effective engagement. A specific list of engaged buyers ensures that the focus is on parties who have shown genuine interest and have been actively involved in discussions. This approach enhances the likelihood of a successful transaction by concentrating efforts on serious prospects.

Ensuring Fair Commission Entitlement

One of the key reasons for ensuring that a sell-side advisor provides a list of engaged buyers is to protect the client's financial interests. Advisors who include every potential buyer on their list, regardless of their level of engagement, might claim commission for sales that result from their broader list. This practice can lead to disputes over commission entitlements, particularly if the sale is completed with a buyer who was not genuinely engaged. A specific list of engaged buyers provides clarity and fairness in determining commission rights, ensuring that advisors are compensated for their actual efforts.

Building Trust and Accountability

A sell-side advisor who provides a list of engaged buyers demonstrates transparency and accountability. It builds trust with clients by showing that their efforts are focused on viable prospects rather than a broad, non-selective approach. This transparency helps in maintaining a professional relationship and ensures that both parties are aligned in their goals and expectations.

Provide Post Contract Flexibility to the Owner

If your advisor is unable to sell your business during the contract period and you decide to end the relationship and either sell it yourself or engage a new advisor, obtaining a precise list of actively engaged buyers is crucial. This list not only protects your interests but also ensures a smoother transition. It provides any new advisor with a clear record of which buyers have already been approached and engaged. This prevents unnecessary duplication of effort by avoiding the re-contacting of buyers who have previously been reached out to, thereby streamlining the sales process and improving the efficiency of any subsequent advisory relationships.

In contrast, receiving a broad list of every potential buyer in the market—including those who were never meaningfully engaged—can significantly hinder your ability to move forward. Such a list can complicate the process of using another advisor or selling the business yourself, as you may face restrictions or delays. In some cases, you may not be able to sell your business to any interested parties without paying your previous advisor a full commission.  You might have to wait out the entire 12-18 month tail period before you can list with a new advisor or pursue other buyers, potentially stalling your sale and limiting your options.

Wicklow’s Commitment to Transparency

At Wicklow Healthcare Advisory, we prioritize transparency and accountability throughout the advisory process. We recognize that sometimes, despite our best efforts, relationships may not achieve the desired outcome. If we are unable to sell your business and you decide to end our engagement, we will provide you with a detailed list of engaged buyers. This list will include all parties with whom we have had substantial discussions and genuine interest in your business. This approach ensures you have a clear record of our efforts and the serious prospects we’ve engaged with, safeguarding your interests and offering valuable insights for any future sales efforts. 

Considering selling your veterinary, dental, or medical business? Contact Bill and the team at Wicklow Healthcare Advisory @ info@getwicklow.com or visit www.getwicklow.com