Evaluating Proprietary vs. Brokered Opportunities

When a business owner engages an investment bank or M&A advisor to sell their company, the economics of that relationship fundamentally change the buyer's position. The advisor's fiduciary duty runs to the seller; their compensation is maximized by maximizing sale price and deal certainty. This means that every aspect of the process—the timeline, the information provided, the communication protocols—is designed to generate competitive tension among buyers and push the clearing price higher.

For buyers who compete in brokered processes, the practical implications are significant. You will receive a CIM that has been carefully curated by an experienced deal team. You will have access to the same information as all other buyers. You will face a compressed timeline that limits the depth of your diligence. And your LOI will be evaluated not just on price but on certainty of close, which means your track record, your financing structure, and your speed of execution all factor into whether you advance.

A proprietary transaction—where you are the only buyer speaking with the owner—changes nearly every dimension of the deal dynamic. The seller has not yet been exposed to competitive valuation bids, so they may have a price expectation anchored to their original financial planning rather than to current market multiples. The timeline is set by mutual agreement rather than by an advisor's auction process. And the information you receive can be requested in the format most useful for your analysis rather than the format most favorable to the seller.

Proprietary deals also allow for more honest diligence conversations. When a seller knows you are the only buyer in the room, they have a stronger incentive to disclose risks proactively—the deal is unlikely to survive a diligence surprise with no other buyers to return to. This dynamic often produces better information quality and a more collaborative transaction process than a competitive auction.

Brokered processes in the lower middle market typically clear at a 0.5–1.5x EBITDA premium relative to proprietary transactions in the same sector and size range. This premium reflects the competitive dynamics of the auction, but it also reflects survivor bias in brokered deal flow—advisors only take mandates on businesses they believe can command competitive valuations. As a result, some of the multiple premium in brokered deals reflects genuine quality selection, not just auction dynamics.

The right framework is not to reflexively prefer proprietary deals but to understand what you are paying for and whether the risk profile supports the different valuation. A brokered deal with a clean business, a motivated seller, and a reasonable competitive process may deliver better risk-adjusted returns than a proprietary deal where you spent eighteen months developing the relationship but the business has unresolved structural issues.

The most effective search fund sourcing strategies are not purely proprietary or purely brokered—they maintain a calibrated mix of both. Proprietary outreach provides early access to businesses before they enter competitive processes and enables relationship-driven deals where price is not the primary decision variable. Selective participation in brokered processes provides access to businesses that may not be reachable through direct owner outreach and allows you to benchmark your valuation discipline against the market.

A useful rule of thumb: allocate the majority of your sourcing effort to proprietary outreach but develop the capability to move quickly in brokered processes when the opportunity warrants. The skill sets are different—proprietary deals require relationship development and patience, brokered deals require process efficiency and decisive execution—and building both makes you a more complete buyer.