The Brokerage Scam

Harness manufacturers often ask me about frequently receiving letters or emails from entities claiming to have a buyer interested in acquiring their company. Are these com­munications legit, they want to know. In al­most every case, the answer is no. Instead, these letters and emails are being sent by disreputable individuals and firms who are simply fishing-with a very wide net.

The senders do not really represent a buy­er-and they might not even be knowledge­able about the wire harness industry. They are simply mass producing blind inquiries to thousands of companies and hoping for a response. Their business model consists of professing to have a buyer, and then if someone responds favorably, scrambling to send thousands of additional letters or emails to companies that might conceivably consider acquiring a wire harness company. In this second wave of communications, the scammers claim to represent the potential seller who took the bait.

The shakiness of this «enterprise» explains what happened to a harness owner I know. She told me she had received a letter from an individual claiming to have a buyer for her business-a buyer who had targeted her industry … a buyer who had selected her company as a perfect fit for its acquisition strategy. But when she contacted the author of the letter asking for a description of the buyer, she never received an answer to her question. Apparently the scammer was unable to find a potential buyer in a reasonable time. Game over.

It is quite fair to label the folks who engage in these practices as scam artists because they bring nothing to the table, and they are mis-representing or lying to both parties. Without industry knowledge, without buyer relation­ships, without the ability to put together a CIM (confidential information memorandum) and without any knowledge of the M&A pro­cess, in the very unlikely event they do put two parties together, the resulting price will not approach the company’s true value.

Although these folks provide no value add­ed, and in some instances do serious harm, nothing they do is illegal-which is why, un­fortunately, this unsavory practice exists in so many business sectors. We are awash in folks trying to make a living in this fashion.

Practically every harness owner I have ever dealt with is barraged with these kinds of let­ters, and my advice is to put these letters where they belong: in the round file.

Written by Loren M. Smith, Blue Valley Capital, article can be found in the Sept/Oct 2020 issue of Wire & Cable Technology.