Search Investors assisting to pay for QoE, Legal Diligence, etc during LOI?

searcher profile

March 29, 2024

by a searcher from Augustana College in Madison, WI, USA

Do investors ever help pay for any of these services during the LOI phase? Obviously the deal needs to show promise but if the searcher has found something worth investing in, do investors ever assist with these fee's if the searcher is unable to do so?

Deal Example:
Purchase Price: 2.6MM
W/RE: 4.7MM
3 yr avg cashflow: ~$660k

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commentor profile
Reply by a professional
from University of Notre Dame in New York, NY, USA
In a traditional search fund model they do- in the search phase, the searcher raises capital from investors in do exactly this: identify targets, diligence them, evaluate financials, and retain advisors to assist with these tasks. The investors typically get a 2x step up on the capital they put into the search phase during the acquisition phase, so whatever money they front for the search, they’ll get double that in equity (plus any new capital they put in during acquisition) of the company you eventually acquire.
commentor profile
Reply by a searcher
from University of Virginia in Fairfax County, VA, USA
If you are a self-funded searcher, generally that's on you. Some providers in the ETA space will delay part of their payment until closing, but you will have to put up some $. As Joseph mentioned, traditional searchers build these costs into the funds they raise for the search.
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