Company left market right before LOI

May 01, 2024

by a professional from Northwestern University - Kellogg School of Management in Southborough, MA, USA

I started my search a few weeks ago and immediately found a company on market that fit everything we were looking for. Size, location, reason for sale, etc. We sent a few questions over to them and they answered them well - exactly what we thought.

There were some warts, but we knew we were going to find things like this, and we'd cut them off. Anyway, we were writing the LOI and got a message from the broker that they decided not to sell the company.

A few notes:
1 - We never talked valuation - that was going to be in the LOI
2 - The process did take longer to get to LOI than we expected, I think I will be faster to LOI next time

Part of me wants to still send the LOI (or maybe change it to an IOI) and see if we get the company to come back on market, but the other part says to move on and find another target.

Anyone else have experience with a situation like this?

Reply by an intermediary
from City University of New York (CUNY) System in Wesley Chapel, FL, USA

It may be the Broker/intermediary, but it also may be the Seller. Be cautious because life changes, partner disagreements, and many other things pop up to sometimes derail an engagement. The key question is whether the intermediary does an adequate job to 1) assess the seller, 2) assess the owners/partners desire for a transaction, 3) get comfortable with their rational for selling/recapping, and determine if it makes sense for their stated objectives, and 4) do a preliminary assessment of the company so you can determine if the results can achieve the objective. If an intermediary does those things, the likelihood of a good engagement that flows to a close is significantly higher. In your case, I'd launch a strike across the bow, and send in an IOI and see who has the problem? If your range is sufficient, the Seller may change their mind and go for it with or without the intermediary (if he's fired them, and there is no tail).

Reply by a searcher
from University of Pennsylvania in Charlotte, NC, USA

Thanks ^redacted‌. . I would contact the broker and let him/her know you are interested in sending an IOI expressing your interest "in case the situation changes." Then write and send a thoughtful proposal including an indication of valuation. Indicate that you are interested in being flexible to meet the seller's needs/wants. Depending on the reaction, you may want to follow up after say 30 days by contacting the seller directly, provided that you haven't agreed to anything that would prevent you from doing so.. But recognize that you are likely going to have to move on to another opportunity.

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