Engaging a Broker to represent you in the sale or purchase of a technology business can provide significant advantages. Brokers typically have an existing network of Buyers and Sellers as well as professionals that can help close your transaction. The advantages will be particularly significant for parties with realistic expectations and broker agreements that minimize legal compromise.

The most difficult challenge in any broker agreement is to define the services to be provided by the Broker objectively. Start by focusing on the targets to be referred, with emphasis on qualifications. Sellers will want referrals of qualified "Buyers" for the business, while Buyers who engage brokers are more interested in referrals of technology businesses for purchase. Success requires defining the criteria that distinguishes the "target as "qualified".


Ancillary broker services are also important. Brokers should provide you with a periodic report of their activities identifying targets. You may also want to engage the broker to conduct preliminary interviews with prospects to establish qualifications as targets. An additional possibility includes broker
support in advertising, soliciting and sourcing prospects. The more specific you can be about those obligations, the more likely you will be able to determine the value-added by broker services.

Broker fees are always a significant challenge. These fees are often contingent, which seems attractive but can be very complicating. One difficulty is objectively defining the contingency. If you have exercised sufficient care in defining a target, then rendering payment of the broker fee at "closing with a target" is a good reference point.

The greater risk involves broker fee claims for transactions with parties that arbitrarily fit the definition of a target and result in a closing, but which were not actually sourced or serviced by the broker. This risk underscores the importance of defining who qualifies as a target and the services demanded of the broker. Otherwise, recipients of direct mail from the broker who conclude a transaction several years later with the Seller or Buyer may trigger an unintended contingent fee claim from the broker.

The best approach to these issues is a contract that resolves ambiguities in favor of the Buyer or Seller, and which clearly defines the terms of the Agreement as well as termination rights. Prudent Buyers and Sellers may also decide to render at least part of the fee a time and material formulation thereby increasing the incentives to provide the required services and reducing the contingency risk.