How do I get an LOI to the table?

August 08, 2024

by a searcher from Sophia University in The Woodlands, TX, USA

Hi all, I'm looking for specific advice on actions I can take to get in front of another buyer. Sorry for the long storyline below, but it's needed for context. Around 3 weeks ago, I contacted a broker about an OEM parts manufacturer listing,

2.5+ mil, 4X multiple
signed the NDA,
received a boatload of financials, etc. and have been looking at the deal deeply, while discussing finance feasibility w/ Angel investors and feel comfortable there may just be a deal here.   Last week, (all week) I traded voicemails with the seller's broker and finally connected last Thursday (I do not have Buyer Representation). We hashed out a few questions I had, and told him I had definite interest and would like to arrange a zoom call w/ the seller. He suggested i send an email with potential times and he'd get back to me. Monday he finally confirmed back he received my email with a "we'll get back to you” text.

Today tho (Wednesday) when I hadn’t heard back, I called again and learned the buyer has an LOI on the table he'll 'probably' sign it this evening. I was caught off guard, but asked if the seller was aware he had another buyer with interest. i couldn't really get a definitive answer. I shared that I had an opportunity to drive to their state a week ago, and checked out the town and did a driveby of the plant. I also shared that I'd spoken with my investors and have financing aligned. This peaked his interest.  He shared that the current LOI the seller has on the table from the other buyer “may not have had an exclusivity clause”- and as such he will go back to the seller asking if they want a face-to-face. This seems weird to me, as they should have known i'd requested one already over 6 days ago- long prior to the signing (?) of the LOI.  So, shifting into strategy mode here.... Does anyone have any thoughts as to me simply submitting an LOI as is- without ever actually talking to the seller? Does he not have fiduciary responsibility to share it? I have no idea what the other buyer has on the table, but I've run all my analysis, and am confident with a full asking price.  I'm also open to any other thoughts/input anyway may have, if you think the broker is the communication bottleneck or around other strategic options available. I have the name of the seller, and it’s in a very rural town.

I know there are other fish always in the sea, I'm self-funded, but have been searching for over a year now, and this is the first one I've seen that checks most the boxes.  Thanks in advance, your inputs appreciated.  John.

Reply by an intermediary
from University of Arizona in Denver, CO, USA

You need to look at this from the broker's point of view. Buyers mean little to a broker. We speak to 15 'Buyers' to have find one real one. Because you want to buy a business does not make you a (qualified) buyer. You have to convince the broker you are a serious and qualified buyer. We waste far too much of our day talking to 'buyers' who will never buy a business. Sorry to be harsh but that's understand that stroking lacks honesty and objectivity. There is a silver lining though. If you present yourself to the broker as a serious buyer (not, 'I have investors, and I'm smart, and I work hard, and I have an MBA###-###-#### and the broker agrees, you will be their first call. The well of buyers and Searchers has been tainted by those who present themselves as above but have zero experience in managing people. Quite honestly, if you have never managed people then you should stop right now, suspend your search, and return when you can demonstrate and prove your experience. Here's a nugget: in the corporate world and when working with investors you are managing 'up', when you are the owner of a business you are managing 'down'. If you have never managed down your likelihood of painless success is low.

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

Such things happen in M&A. My guess, the broker who has shared a boatload of financials seems to have experience and very likely has done extensive marketing. He must have a genuine and/or strategic reason to delay response to you. Part of his job is to keep the seller focused. Some Sellers, if they see multiple offers, they cherry=pick the best points of each and ask the broker to get that. Also, sometimes it is not the best to be the first.
I would not submit the LOI. Instead get in front with a short letter expressing interest with offer outline. Wish him well with the offer he has accepted and say, you want to discuss seller's personal objectives before firming up details. Do not brag about your Angel investors. That is the biggest negative. There are other ways being transparent. Beware that the seller may be required to share your LOI/letter with the buyer with whom he signed the LOI.
FWIW, 4x is low for a $2.5 M EBITDA (unless it is a declining business). I sold two similar size OEM parts mfg. business (one with 2 customers=90%, and the other with #1 customer 40%) each for 5.5 x, 90% cash, 10% seller note.

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