Conflict of Interest in the M&A World

 

As we transition into a buyer’s market of automotive mergers and acquisitions, transparency and fairness are paramount. Brokers are entrusted with sensitive information and have a duty of care to conduct thorough market research, analyze potential risks, and provide informed guidance to our dealers.

I firmly believe ethical conduct and confidentiality is the foundation of successful deals and hope to shed some light on a critical issue.

At Dealer Solutions Mergers and Acquisitions (DSMA), we pride ourselves on the fact we only charge fees on one side of the transaction. Meaning, only the seller or the buyer will pay our success fee after a deal closes. Unfortunately, there are other mergers and acquisitions firms who feel it is appropriate to charge their clients on both ends.

When analyzed, there is a potential conflict of interest when a broker charges both sides of the transaction. Commonly known as dual agency, this practice presents a significant conflict undermining the very foundation of fair and equitable deal making. Brokers should provide full and accurate disclosures regarding the transaction, fees, and terms of the deal.

By representing both the buyer and the seller while charging fees from each party, brokers find themselves straddling a precarious line. This dual role introduces ethical concerns that cannot be ignored.

It’s no secret that mergers and acquisitions brokers play a pivotal role in facilitating deals, bringing together buyers and sellers to navigate complex transactions. However, when a broker represents both parties, it compromises the integrity of the deal in several ways.

To start, when a broker stands to profit financially from both sides of the transaction, their motivations become skewed. Rather than prioritizing the best interests of their clients, they may be tempted to maximize their own financial gain. This could lead to biased advice, favoritism, or ultimately a compromised transaction.

Loss of trust also compromises the integrity of the deal. Established trust is the basis of any successful business relationship. So, if the buy/sell participants perceive the broker is serving their own interests rather than acting as an impartial facilitator, it undermines trust and weakens confidence in the deal. This lack of trust can ultimately derail negotiations and jeopardize the entire transaction.

Assuming trust and negotiations have already been threatened, conflict resolution challenges become relevant. In the event of a dispute or argument during the negotiation (which does happen) how does a broker representing both sides mediate the conflict fairly?  Their dual role creates a perception of bias, making it difficult to resolve issues and reach mutually beneficial agreements.

To preserve the integrity of transactions and uphold ethical standards, it is essential to mitigate conflicts of interest whenever possible. One effective way to do so is by ensuring that brokers represent either the buyer or the seller exclusively and disclose any potential conflicts up front.

Unfortunately, dual agency is not an unusual brokerage practice in our industry.

The DSMA is committed to upholding the highest ethical standards in our advisory services and believe there is an obligation of loyalty. This means we act with an unwavering dedication to secure favorable outcomes for our dealers by maintaining transparency, fairness, and integrity at every stage of the deal-making process. We strive to build trust, foster positive relationships, and drive successful outcomes.

Let’s continue to elevate the standards of professionalism in the automotive industry and work together to create a marketplace that values integrity and transparency. It is only by upholding our fiduciary duty to our clients that we can truly achieve excellence.

 

Authors:

Katie Naughton thumb

Katie Naughton

Vice President, USA, Central/West

Eric Levitt Thumb

Eric Levitt

Vice President, USA, Central/West

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