Seller not delivering DD materials

June 14, 2024

by a searcher in Seven Valleys, PA, USA

Hey folks -- need some guidance/advice please.

I am under LOI on a deal, and have been since May 9. There have been a ton of delays in the delivery of information and clarification on very critical pieces of the puzzle. We are at the point where the deal is in jeopardy due to the time delays despite my consistent requests. At this point I have incurred a decent amount of costs between my lawyer and accountant.

The only binding part of the LOI, per norms, is the exclusivity clause. Are my choices at this point limited to walking away or accepting with what I have, or is there some sort of recourse/action that can be taken if the seller is acting in bad faith and intentionally holding information?

For context --from the LOI:
"[Seller name redacted] will permit Buyer access to all properties, books, records, tax filings and documents relating to seller, and, subject to reasonable notice, seller will make its employees (directly or indirectly, very near to Closing date), customers (indirectly) and advisors available for consultation. Until Closing, seller shall operate its business in the ordinary course and consistent with prior practices."

Reply by a searcher
from Cabrini College in Eagleville, PA, USA

Agree with ^redacted‌. My best advice would be to always attempt to delay any legal / diligence spending, until absolutely necessary. This is a perfect example of why. Take a step back from the deal and truly evaluate it with what you've been provided thus far. Does the information match what was provided / communicated in the CIM or in early calls with the Seller/Broker. If the information (let alone the omitted items) are below expectations, I would agree and treat your costs as sunk ones. That said, I always find it helpful to be transparent and inform them of your concerns along with the prospect of the deal being killed. Either way, I know it's tough to lose money, but much better to learn this early on in the process, than after you've closed and are PG'ing a business you were oversold on. Best of luck!

Reply by a searcher
from University of Pennsylvania in Dubai - United Arab Emirates

Tell all advisors "pencils down" until you engage with the Seller to understand why the information is not being provided. this should be very specific to the information you say is crucial/critical. if the explanations are compelling then: (1) agree deadlines for all the information to be provided (2) agree that you will not incur any additional cost until 100% of the agreed information is provided and (3) extend LOI exclusivity keyed off the date of delivery of the last item of information. Only do this if (a) you are convinced that the delays are capability/capacity (i.e. systems or available info are causing issues) and (b) you like the deal enough to go through this.

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