Tips for encouraging sellers to move on submitted LOIs

April 14, 2023

by a searcher from University of Pennsylvania - The Wharton School in Minneapolis, MN, USA

I submitted an LOI to a seller (proprietary deal - no intermediary such as a broker) three weeks ago and have had trouble getting the seller to even start the negotiating process. I have a sense the seller is trying to drum-up other competing offers and I'd like to strike a balance between being persistent and respectful. There is no offer-exploding deadline in the LOI.

I'm wondering what tips folks might have for encouraging or motivating sellers to come to the table and start building momentum to get the LOI signed. Thanks in advance for any advice!

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Reply by a searcher
from The University of Michigan in New York, NY, USA

I think this is pretty natural / common. It can be difficult when you find a business you really want but the reality is, the better the business, usually the longer the seller can wait / the broader their options will be. The seller will always be looking to maximize value. In my experience, where you can help yourself the most is being respectful via communications while also being candid - this helps develop a relationship and trust. Perhaps share that while you recognize he or she may have hold ups on moving forward, you are looking at other businesses, so you may need to move on if the timing isn't right, but leave the door open for future communication. I have seen acquisition opportunities go from warm to dead to revived in a fairly short timespan. It's annoying but I've found that sometimes playing the long game can have benefits and there's really only so much you can do to motivate an unmotivated seller. Lastly, if you're able to get the seller on the phone, I've always found it's helpful to ask them about themselves and what their motivations are (both in business but in life in general). For example if they're looking to retire, you can discuss that topic and help them to verbally work through the implications of what you're offering (letting them destress their lives, enjoy more time with family and friends, etc.).

Reply by an investor
from University of Pennsylvania in Charlotte, NC, USA

Laura, I completely agree that a response deadline should be incorporated in an LOI. But I have the same question as Colin: how do you make a confidentiality provision effective, i.e. binding and enforceable, without the recipient agreeing to such term (by signing a document)? Every well-drafted LOI we have encountered has a non-disclosure provision - which is normally one of the few legally binding terms - but if there is no legal contract, i.e. signed agreement, it is not valid and gives no protection. Am I missing a wrinkle in the law on this? In any case, in reality, we find these offer little practical protection for the same multitude of reasons that impact the practical enforceability of most confidentiality provisions.. Also wondering how is a submitted LOI enforceable on the buyer? If not signed by seller, there is no contract to enforce. And if signed by seller, it is still only a statement of intention (excepting specifically identified provisions) and not binding. Under what circumstances would a seller reasonably seek to force a buyer to perform under an LOI? I suppose it's not impossible but we have never seen or heard of such a thing. Sorry, I don't mean to be adversarial, but am interested in learning something I'm unfamiliar with.

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