The Morality of Multiple LOIs

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June 15, 2024

by a searcher from University of Cambridge in Dallas, TX, USA

What is the view on having multiple LOIs out at the same time? Do some consider it unethical given that it inevitably ties up at least one seller whose business won't be purchased? Or is it just part of acquisition entrepreneurship?

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Reply by a searcher
from The University of Michigan in 1075 Gills Dr, Orlando, FL 32824, USA
Lots of interesting comments above. I have a few things to add.

1) An LOI is non-binding but typically grants you 90 days of exclusivity. If you are locking up multiple deals at the same time with the intention of only closing on one, then that is unethical.

2) When I ran my process, I would submit an LOI with a deadline, typically 2 or 3 days, and would tell the seller that I won't submit any other LOIs for that period but as soon as it expires, I will move on to the next deal. I believe this creates a sense of urgency but it also removes the risk mentioned above of the seller taking weeks to evaluate an LOI. That doesn't mean you should stop pursuing other deals for those 2-3 days, it just means you don't submit an LOI on any of those prospects.

3) If you really want to submit multiple LOIs at the same time, the only way to do it in an ethical manner would be to tell the seller you were doing so and define how you will choose if multiple LOIs are accepted. For example, you may say you will move forward with the first signed LOI, or the one that has the best terms, etc.
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Reply by a searcher
from Mount Union College in Nashville, TN, USA
So everyone here is saying its okay for a seller to run a process where they circulate a teaser for a month, then ask for IOIs and review those bids for a another few weeks, then select a few to submit an LOI, and then take another few weeks to evaluate those and then choose one of those to go exclusive with which is also non binding and they can walk away at the 11th hour after you are potentially hundreds of thousands of dollars in on DD spend but building a pipeline and taking action on multiple opportunities for a buyer is not ethical? Not to mention if you are self funded you are just sitting on your hands for all this time supporting yourself and family on savings and if you are a search fund you are spending investor dollars to pay yourself a search salary which is a complete waste if you could have been more active and closed a deal moths faster than if not. Doesn't make sense to me and does not equate to having enough serious activity to actually close on a business. I am not supporting submitting 75 LOIs in a weekend but I am also not supporting doing one at a time sequentially.
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