How to go from first call with Seller to LOI?
May 08, 2024
by a searcher from Duke University in Chapel Hill, NC, USA
I am a self-funded searcher in central North Carolina looking for manufacturing and industrial services companies. I recently did a direct mailing campaign and my message seems to be resonating because business owners have started calling me. The first call usually goes great but then the trouble comes. I don't have a good process to go from first call to LOI. I have sold an F500 business unit before but I never interned with a search fund, or did an ETA bootcamp, or attended an ETA conference. I think I mostly need practice / more reps in talking to business owners.
Anyone that does done the reps willing to jump on the phone and share their process with me?
*Title updated
from Mercer University in Atlanta, GA, USA
That usually gets the brokers attention and leads to a call with the Seller, followed by an in person meeting (if local) and then a signed LOI after a round of negotiations.
I try to get a "conversation starter" LOI out to the broker/ Seller as fast as possible to build confidence that I'm a serious buyer and not just a "tire kicker" and then take time to refine it before securing signatures and going into DD.
from University of Tennessee in Nashville, TN, USA
Did you put money in your letters? Mail response rates vary based on the message enclosed. At every step of any relationship, you set the level of trust AND anticipation in how you message. If your initial message un/intentionally misleads the recipient, follow-up interactions will deteriorate the trust because the illusion created will not meet the reality.
The entire M&A process is absolutely a courtship to get married, albeit on a very concentrated timeline. At first, you see who's out there (search). Then, you approach those that you'd like to get to know (inquiry). After casually dating, you make a commitment to exclusivity (LOI). From there, you learn as much about a person as you can (diligence). If you like what you see and hear, you pop the question (purchase agreement). Hopefully, no one will get cold feet before the wedding day (closing day). Then, s/he is yours for as long as you want to be together (marriage).
An understanding of the M&A courtship is foreign to many unrepresented Sellers and many represented Sellers, too. It's human nature to be cautious and we've further been conditioned to be even more astutely cautious when money is involved. The diligence process, if done correctly, is intended to be a full-body exam, both external and internal. No one likes being probed or told that something adverse has been discovered, especially when there isn't trust in the party doing the probing.
Buyers should be adaptable and patient with Sellers and Advisors to a limited extent. Everyone is hoping for the best in a transaction but are equally uncertain if the outcome will be realized. The more time you spend on building relationships with the deal parties, the higher the probability that adverse discoveries can be remedied. However, every individual has there own communication style and behavioral timing. A mismatch of delivery and/or timing will result in friction.
Buyers should also be prepared to educate unrepresented Sellers about the traditional acquisition process, the specific documentation that is necessary (financial, legal, tax, operational, etc.), and explain the importance of each step of the process. This education will not be a one-and-done conversation, will need to be revisited from time-to-time in the process, and may also need to be shared with less-astute Advisors.
The confused party in a transaction will generally say 'no.' Don't leave to chance that the Seller knows what lays ahead. Also, don't burn a bridge if the timing of the transaction isn't right. There are countless examples of Sellers reconnecting with potential Buyers years later and transacting then. Always leave them with a smile!