Proof of Funds / Comfort letters on Self-funded searches

September 29, 2023

by a searcher from IESE Business School in Chicago, IL, USA

Hi all -

My search partner and I have run into an issues with several brokers requiring proof-of-funds before accessing a potential deal. As we're self-funded and planning to finance primarily with SBA loans, we're not able to show direct funds to these brokers. We've received a broad comfort letter from a bank, but was curious how others in this situation have dealt with this in the past? What options exist for us to satisfy brokers on this requirement in general?

Thanks!

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Reply by a searcher
from The University of Hull in Hull, UK

Never, ever provide proof of funds to a broker. I have been asked for PoF before and my response is always that I will not provide any proof as I have not seen any financials yet. I also make it clear that I have funders in place when I need them. The brokers just want to see how much money you have access to so that they can drive up the price

Reply by a searcher
from University of Pittsburgh in Tampa, FL, USA

What size/type of broker is requesting this, I assume you're talking bigger than the small-business-type-brokers? That's you're situation, no hiding it just be confident about it. You can continue to try this route if you feel it may be fruitful, but the only deal you'll likely win is if no institutional-buyer steps to the plate. Broker will always suggest the more sophisticated buyer; they might recommend giving you a crack at it if you're much higher on value and minimal risk of stalling another buyer. You can also try to remain in communication with the broker and impress them with your M&A knowledge to give comfort and remember you when he/she has a process that's right for you. Another angle you can try to play is if the seller seems a much better fit for a deal with you versus a more sophisticated buyer, which is definitely possible for an entrepreneur. The more detailed you can get into as to why the seller would prefer you in that regard, the better. If these are brokers like what I said I was assuming,... with this search strategy you should be targeting industry bankers, not deals

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