What are some of the post-LOI "landmines" people have experienced?

searcher profile

November 12, 2021

by a searcher from The University of Michigan - Stephen M. Ross School of Business in Columbus, OH, USA

We're about to enter into LOI on a business and in an effort to try and avoid things going south (to the best of our ability), I'd love to hear some of the reasons other searchers or individuals with experience in the space have watched deals fall apart before reaching the finish line...

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commentor profile
Reply by an investor
from Stanford University in Bellevue, WA, USA
An issue I have run into post LOI is when you are dealing with unsophisticated sellers. They don't understand the due diligence process or even what a lot of the terms in the LOI or purchase agreement means. On one deal, the seller didn't understand that the debt being raised would be company debt rather than investor debt. This affected him because he was leaving equity in the company. Another deal, the seller didn't want us to talk to his customers. I always recommend to the seller to get good legal counsel which many times makes your job easier.
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Reply by an investor
from University of Pennsylvania in New York, NY, USA
I agree with contractor employees and working capital and have experienced both. I have also seen insurance be a potential landmine especially in some industries. Individual owners can be dramatically underinsured relative to what a professional investor would do or a lender would accept. This issue is tenfold in a carve out where insurance is spread across a much bigger base. Worth a quick review from your broker. Can recommend ^redacted‌ for this.
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