How soon do you get to the LOI phase?

August 04, 2023

by a searcher from Rutgers-The State University of New Jersey-Camden - Rutgers School of Business in Cherry Hill, NJ, USA

I lost out on the first deal I seriously looked at because, while I thought I was moving expeditiously once it was listed, other buyers had come out of the gate with LOIs. I took a day or two with the CIM and asked the broker a few questions. Then when I asked the broker about meeting the seller, he told me I was eight in line, and the seller wasn't taking any more meetings.
How quickly do other searchers move on an LOI? Have others had the same experience?

Thanks

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Reply by a searcher
in New York, NY, USA

As soon as I know I'm interested, I ask to meet with the intermediary to better understand the process, gauge feedback, and modulate the timeframe in my mind. I am relatively quick to put together an IOI and ask for a management meeting. But in terms of actually penning an LOI, we have an intention to bat###-###-#### when we sign an agreement. So we try to be more thoughtful and craft the deal structure with the seller considerations shared over our meeting with them in mind. Usually that process of Receive CIM to Submit LOI is at least a few weeks. If we miss out on an opportunity, so be it. There will be more. We would rather be sure that the one we sign and close on is completely right than rush into an acquisition just out of fear someone may buy a bad company before us. There are times, however, when a broker we know well is bringing a deal similar to one we've indicated interest on before. So on those deals we can shortcut some of the process because the first call with the broker can give us a lot more meaningful information.

I wouldn't want to use an intermediary who is trying to rush the process through, because in my humble opinion they're not even doing their own client a good service by not vetting the buyers appropriately....what kind of moral duty do you think they will act on to you if their legal obligations to their actual client are so quick to go out the window? Just like opportunities, there are plenty of high quality, trustworthy intermediaries I would rather speak with. But sometimes there is a perfect bid from a perfect buyer, and it isn't my goal to pull my hair out fretting that I'm not a strategic looking to pay a multiple 50% too high just because I can dream up some synergies. They can act a lot quicker than I can because their margin for error is so much higher.

Reply by a searcher
in Chicago, IL, USA

^redacted‌ there are a few things to note. First, they have one company to sell and you have thousands to choose from - don’t get discouraged. Second, there are a lot of people that use an LOI as a hypothetical place in line. I’ve seen folks issue 5-10 LOIs per week, knowing full well they have no intention doing anything but baiting potential sellers.

if you are finding on-market deals there will ALWAYS be competition for the good deals. Finding an off market deal is easier than you might think. However, what you trade for lack of competition, will ultimately mean and slower transaction, because you came out of the blue and it can take months, if not years to get a company properly ready to sell.

I would have an LOI template drafted that can be modified for distribution within###-###-#### minutes. Don’t be disingenuous, but once you’ve reviewed a dozen deals, you can typically spot a reasonable one spending 10 minutes with their CIM.

hope this helps.

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