Brokers serve a legitimate function in M&A. They connect buyers and sellers, manage process logistics, and help structure transactions. But when a platform becomes dependent on intermediaries as the primary source of deal flow, that dependency creates costs that compound across the hold period and erode value at exit.

Most platforms don't calculate these costs. They see success fees as a necessary expense and move on. But the real cost of broker dependency isn't just the fees paid on individual transactions. It's the structural disadvantage that dependency creates: reduced control, higher transaction costs, limited differentiation, and missed opportunities that never make it into the pipeline.

The Visible Costs Are Just the Beginning

Success fees are the most obvious cost of broker dependency. They typically range from 3% to 10% of transaction value, depending on deal size and complexity. For a $5M acquisition, that's $150K–$500K paid to an intermediary.

Across five or ten acquisitions, those fees add up. But they're transparent and quantifiable. The platform knows what it's paying and can budget accordingly.

The hidden costs are far more damaging:

• Reduced negotiating leverage — Brokered deals involve multiple bidders, which drives valuations up and limits the buyer's ability to structure favorable terms
• Loss of timing control — Brokers dictate when deals enter the market and how long processes run, forcing buyers to move on the broker's timeline rather than their own
• Compressed diligence windows — Competitive processes leave less time for thorough review, increasing the risk of overlooked issues
• Limited strategic alignment — Brokered targets are often positioned for broad appeal, which means they may not fit the platform's specific thesis as well as proprietary opportunities would

These costs don't appear on any invoice. But they show up in hold period performance and exit multiples.

How Dependency Compounds Across the Portfolio Lifecycle

The impact of broker dependency isn't isolated to individual transactions. It accumulates over the hold period in ways that undermine portfolio performance:

1. Higher Aggregate Transaction Costs

If a platform closes eight acquisitions during a hold period and pays an average of $300K in success fees per deal, that's $2.4M in direct broker costs. That capital could have funded integration, talent, or infrastructure improvements. Instead, it went to intermediaries.

Platforms that reduce broker dependency by 50% — sourcing half their deals proprietary — immediately recapture a meaningful percentage of that cost. Over a four- or five-year hold period, those savings compound into millions of dollars of preserved value.

2. Reduced EBITDA Expansion Due to Higher Purchase Multiples

Brokered processes drive competitive bidding, which inflates purchase multiples. A target that might trade at 4.5x EBITDA in a proprietary negotiation could go for 5.5x or 6x in a brokered auction.

That difference matters at exit. If the platform pays a higher entry multiple, it needs stronger operational performance to achieve the same return profile. And if market conditions at exit are less favorable, the platform absorbs the downside risk of having overpaid.

Proprietary deal flow allows platforms to negotiate from a position of strength, securing better entry multiples that create more margin for error and more upside at exit.

3. Missed Opportunities That Never Enter the Pipeline

The most damaging cost of broker dependency is what never happens: high-quality targets that could have been acquired but weren't because no one was proactively sourcing them.

Brokers represent a small percentage of potential acquisition opportunities in any given market. Most business owners never engage a broker. They sell when approached by the right buyer, at the right time, with the right terms.

Platforms that depend on brokers limit their addressable universe to the subset of targets that happen to enter a brokered process. That means they're competing for a narrow slice of available opportunities while missing the broader market entirely.

Proprietary sourcing expands the universe. It allows platforms to engage targets before they're shopped, build relationships over time, and structure conversations around strategic fit rather than reactive bidding.

4. Reduced Differentiation Among Buyers

In a brokered process, all buyers look roughly the same. They receive the same materials, participate in the same management presentations, and submit offers within the same timeline. Differentiation becomes difficult.

Sellers choose based on price, terms, and perceived execution risk. Platforms that want to stand out must either pay more or accept less favorable terms. There's limited room to compete on strategic value or long-term alignment.

Proprietary deal flow changes the dynamic. When a platform originates an opportunity directly, it's not competing against a dozen other bidders. The conversation is strategic rather than transactional, and the buyer can differentiate on factors beyond price: operator support, growth resources, integration capability, and cultural fit.

That differentiation often translates into better terms, faster closes, and stronger post-acquisition alignment.

What It Takes to Reduce Dependency

Reducing broker dependency doesn't mean eliminating brokers entirely. It means building the infrastructure to source a meaningful percentage of deals proprietary, so that brokered opportunities supplement the pipeline rather than define it.

That infrastructure includes:

Systematic Target Identification

Most platforms don't systematically identify and track high-quality targets. They wait for opportunities to come to them through brokers or network intros. Proprietary sourcing requires the opposite: proactive identification of targets that fit the platform's thesis, followed by structured outreach and relationship development.

Systematic identification doesn't mean mass outreach. It means building a target list based on clear criteria, tracking engagement over time, and prioritizing the targets most likely to result in strategic fit.

Long-Term Relationship Building

Proprietary deals rarely close quickly. They require relationship development, multiple touchpoints, and patient engagement. Platforms that succeed at proprietary sourcing treat it as a long-term investment rather than a short-term campaign.

That means maintaining consistent communication with targets over months or years, providing value along the way, and being ready to move when timing aligns.

Clear Ownership and Accountability

Proprietary sourcing requires someone to own it. Whether that's an internal role, a fractional resource, or embedded infrastructure support, the key is singular accountability for origination outcomes.

Without ownership, proprietary efforts fade. With it, platforms build sourcing capability that compounds over time.

The Long-Term Impact on Exit Outcomes

Reducing broker dependency improves hold period performance in measurable ways:

• Lower cost per closed transaction — Fewer success fees mean more capital available for value creation
• Better entry multiples — Proprietary deals avoid competitive bidding, reducing purchase prices and improving IRR
• Stronger strategic alignment — Deals sourced proprietary are more likely to fit the platform's thesis and integrate effectively
• Increased acquisition velocity — Proprietary pipeline supplements brokered flow, increasing the number of high-quality opportunities available at any given time

These improvements compound. A platform that reduces transaction costs by $300K per deal, improves entry multiples by 0.5x, and increases acquisition velocity by 30% sees material improvement in exit outcomes.

That improvement isn't speculative. It's the predictable result of owning more of the origination process rather than outsourcing it to intermediaries.

Final Thought

Brokers aren't the enemy. But dependency on them is expensive in ways most platforms don't fully account for.

The visible costs — success fees and retainers — are just the surface. The hidden costs — inflated multiples, lost timing control, reduced differentiation, and missed opportunities — accumulate across the hold period and show up at exit.

Platforms that build proprietary sourcing capability recapture that value. They don't eliminate brokers, but they reduce reliance on them. And in doing so, they create structural advantages that compound into better performance and higher exit multiples.