Convention for recognizing broken deal costs on self-funded searches

by a searcher from University of Victoria

4 months ago

Hey folks, 

Does anyone have any insights to share about how they incorporated broken deal costs into future deals and/or their self-funded search? I have about $30k worth of expenses from a recently broken deal. 

I'm Thinking about either including it as an equity contribution as part of the search or sharing it with an investor who's along for the journey as well. I think it warrants being recognized, as it would in a traditional search, but I am curious as to how others have approached it.

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6 comments

searcher from New York University

1. There is nothing wrong with asking the investors to consider your broken deal costs incurred in arriving at the ultimate deal assuming that the deal costs are reasonable… and it sounds like yours are. If done in the right way and at the right time you have a real shot. If it were me in your shoes I would absolutely ask and accept that they might say no….if I were the investor I would also consider covering my prorata share if I were excited about you and the deal.
2. Circumstances are obviously important and if it’s the same investors on your deals perhaps they include some or all of those broken deal costs as part of your capital contribution(like you suggested) I have seen this before with others and also been the beneficiary of this myself in the past . I don’t see them writing you a check at close and reimbursing though. Again the circumstances , investor dynamics and timing of how you deliver the ask is crucial .

I’ve also seen these type of asks thrown in, if you have a competitive deal and have more demand from investors than capacity you could consider this as part of your ask in economic negotiations …

hope this helps you and good luck.

4 months ago | like reply | 0 likes

professional from York University

I have a different perspective from the other commenters. If a transaction does end up closing, I have seen funds from the opco flowed upwards over time to pay for broken deal costs from previous transactions. But that's contingent on a transaction closing - I haven't seen investors get asked pre-closing to pay for previous broken deal costs. I feel like that would be a hard sell.

4 months ago | like reply | 0 likes

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