What is an appropriate level of questions and data requests pre-LOI
June 26, 2024
by a searcher from Northwestern University - Kellogg School of Management in Minneapolis, MN, USA
I've now seen a few data rooms with differing levels and detail of data, but the most recent has less than the others. Before plugging the broker/banker with a bunch of questions, what are folks experience with how much data is appropriate to ask for pre-LOI?
For example, for the current Co i'm looking at, I have the CIM and the data room has double clicked balance sheet and income statements over the past 3 years. But I'd like to get more detailed data on trended revenue mix by product, inventory aging schedules, individual employee salaries, lease contracts, etc...
I'm sure the answer is "it depends" and varies among and between:
1. Don't expect anything more and don't ask, most LOI's will be based on the CIM and little more
2. Might as well ask and see what you can get - the more the better for the LOI and not going to hurt the deal
3. You need that info before submitting an LOI or you're wasting time
Any perspectives on those and tips for effectively getting that information?
from Boston College in Mansfield, MA, USA
Typically we provide high-level summary information related to financial trends, customer concentration (no names), high level org charts (no names), and other interesting information in the pitch book (1st round). We also provide answers to very high-level questions..
For the second round we provide more detail information in a mini data room. This typically will go one-level down on information. Our goal is to provide enought information that the offer in the LOI will stand up to diligence. During this round we expect questions about pipeline, backlog, client acquistions strategies, marketing strategies. We anticipate questions about synergies. Questions about key positions and likelyhood of retention post close. We often get questions on profitablity by customer, by product, by division.
Even in the second round we will not provide employee names and customer names.
If we feel a question is too detailed or gives away trade secrets, we will politely decline and let the buyer know that information will be provided as part of confirmatory diligence.
If a buyer asks a good question or requests data that will help solidify an LOI, we will provide that information to the other bidders as we want all bidders make offers from an equal footing.
from University of North Texas in San Antonio, TX, USA
Determining the right level of data requests pre-LOI can be challenging, but here are some key points to guide you:
1. Connect with the Seller: Always start by building a good relationship with the seller and ensuring you get the basics.
2.CIM and Basic Financials: The CIM is the best-case scenario for initial information. Standard financials like balance sheets and income statements should be available.
3.Additional Requests: If you need more details, such as revenue mix, inventory aging, or lease contracts, explain why this information will help you make a better offer. However, don't overwhelm the seller with too many requests at this stage.
4.Understand SDE: If the seller brings up Seller’s Discretionary Earnings (SDE), remember it’s not always a reliable figure for your analysis.
5.Pre-LOI is IOI: Treat the pre-LOI stage as an Indication of Interest (IOI). Use it to gather enough data to make an informed decision without diving too deep into due diligence.
6.Use Your Board: Leverage your board for insights and advice during this phase. Balance your need for information with maintaining a positive relationship with the seller. Request essential data to make a confident offer, and explain your rationale clearly.
Make the offer as best you can with what information you have. Just make it happen or pass.