Independent Sponsors: How do you demonstrate financial backing to sellers?

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April 10, 2020

by a searcher in Florida, USA

I am curious how independent sponsors navigate when a potential seller asks for them to produce statements or demonstrate financial backing before proceeding to even have a discussion. This seems like a big roadblock.

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Reply by an investor
from Western Washington University in Key West, FL 33040, USA
https://www.amazon.com/Convinced-Prove-Your-Competence-People/dp/###-###-####

Talk to investors. Become confident that you can raise 3-5x the total equity needed for the right deal in your target size. Realize that the equity is a relatively small part of the deal and start talking to lenders. Get a "letter of support" from a lender that you like. Develop a narrative and convince the other parties that you have the competence and support needed to raise the debt and equity required to close the deal. This will satisfy 95% of the brokers/sellers in my experience. Though not sure about a post COVID-19 world...
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Reply by a searcher
from New York University in Larchmont, NY, USA
I assume that the goal is to begin a discussion and not necessarily to close right away. The first thing I would do is make sure that you have a current personal financial statement. You don't need to share this with the seller, but it is a good basis for what you will want to share. And if you are going to use a bank for an acquisition you will need to provide this to obtain a loan. Note that the bank is likely to expect to receive an updated PFS annually.

Once you have the PFS, you can take the information from the asset side and create a nicely formatted table showing your some or all of assets. This will hopefully show that you have access to cash and are taking this seriously.
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