Bank pre-qual letter to get a CIM?

July 09, 2024

by a searcher from Vanderbilt University - Owen Graduate School of Management in Cincinnati, OH, USA

Just ran into a deal where I was asked for a bank pre-qualification letter before I could get a CIM. Has anyone run into this before?

They also asked for a personal financial statement and LinkedIn page. I said that was fine, but I wanted to be under NDA first. I was told I needed the bank pre-qual to get the NDA. Meanwhile, what bank is going to to pre-qualify someone without knowing size and basic metrics of a deal? Rant over.

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Reply by a searcher
in Rindge, NH 03461, USA

Brokers asking buyers for a pre-qual letter or proof of funds is a 'trick question' that functions as a very effective 'litmus test' by the broker to find out if the buyer is inexperienced. Brokers are flooded with lots of inquiries, sometimes over 100 on each deal. They don't have time to interact with everyone so need to disqualify most of the inquiries. Ignoring inquiries and waiting for serious buyers to pick up the phone and call is one way they screen buyers. And asking for proof of funds/pre-qual letters is another. Experienced buyers know that this is a trick question and they don't provide either one. Inexperienced buyers think they actually have to provide this when they don't. Don't get sucked into the trap of answer/providing this. Everyone with any experience knows, as do the brokers who are asking, that proof of funds and bank pre-quals mean absolutely Nothing. The 'experienced' answer is to push back and 'call their bluff'. What the broker is trying to determine is if you are experienced or not. If you stand up, push back and talk like you know what you are doing, 90% of the time the broker will quit asking for stupid proof of funds and engage with you as a serious buyer. So, my advice is stop falling for the trick question, it only confirms that you are a newbie.

Reply by an intermediary
from Yale University in New York, NY, USA

There are excellent responses here. If you would indulge me... I actually worked a deal, where I represented the sell side. The process in place was (1) Teaser 5 pages with relevant information, (2) NDA + non-refundable deposit of money + proof of capital in order to receive (3) The CIM. I believe we were able to do this because the client wanted to cover the costs of the retainer phase of the assignment...and the deal was so popular, meaning that everything comes down to supply & demand. We received 15 submissions and three made it to the next round. Supply and Demand. But definitely a rare situation. Happy M&A!

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