Downsides of gap between initial indication and second bid

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by a searcher from University of Pennsylvania - The Wharton School
in 110 Horatio St, New York, NY 10014, USA

2yrs ago

Downsides of gap between initial indication and second bid

Hi all - I’m looking at a business that wants an initial indication of interest before spending more time, providing more detail, etc. What are the downsides of submitting an initial indication of interest that’s meaningfully different than a letter of intent in terms of valuation (should the input sway our opinion at all)?

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reply by a searcher 2yrs ago
from Babson College in Syracuse, NY, USA

I agree with Shane, as long as they’re willing to give you some financial data, i.e. a couple years of balance sheets and income statements, redacted top 10 customers and their sales for the last couple of years, aging reports, etc. I did find sellers that aren’t willing to give you a full or close to full look at the business are either looking for a free valuation or aren’t really committed to selling. The four deals I went to the LOI stage with all gave me whatever I wanted for information and a couple went way beyond what I expected, i.e. access to key employees, introductions to suppliers, etc.

reply by a searcher 2yrs ago
from The University of Chicago in Seattle, WA, USA

Recommend ranges in IOI given the unknowns, and only getting to specifics in the LOI with parameters around EBITA multiple or revenue multiples so that they don't get stuck on a # and instead understand they will be getting 3X or 5X some figure that will need to be reviewed and validated.