Fee For Loi?

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12/29/2020 Redacted Redacted

searcher The University of Michigan - Stephen M. Ross School of Business Vanderbilt University - Owen Graduate School of Management Indiana University at Bloomington University of Texas at Dallas

Good News: Exploring a company that checks all the boxes... Solid revenue/cash flows/EBITDA.

Bad News: The owner of the non-broker listed company wants a $50k fee to put the company into an exclusive Letter of Intent. They also would like to have the LOI time period be a short 14-days! If the company does not "check out" during LOI they keep the $50k.

Anyone have similar experiences and if so, how did you overcome?

Thanks in advance!

0 likes 198 views 12 comments

searcher The University of Michigan - Stephen M. Ross School of Business Vanderbilt University - Owen Graduate School of Management Indiana University at Bloomington University of Texas at Dallas - 12/29/2020

We've had similar "requests" and I'll be happy to share. Please contact me at [redacted] Sam P.

like reply | 0 likes

searcher University of North Texas - 12/30/2020

They are over rotating on keeping away the tire kickers, in my view. An LOI is always (always!) subject to due diligence. Maybe they got burned earlier. Without seeing/knowing the numbers, hard to say what is fair as 'earnest' money which would be in an attorney's account anyway. But 30 days is the absolute minimum I would accept as a DD timeframe and non-sat DD means a punt and your money returned.

like reply | 2 likes

intermediary Wake Forest University - Schools of Business Emory University - Goizueta Business School - 12/30/2020

A fee for looking (not to be confused with an appropriately structured earnest money deposit in a trust account, which is usual) and 15 days are both very unusual.

like reply | 0 likes

intermediary Naval Postgraduate School United States Naval Academy - 12/30/2020

I suggest that you try to educated the Seller. The seller may be thinking Real Estate. There are so many potential problems that can be deal killers that cannot be discovered until Due Diligence. I recommend that you "walk" if the Seller doesn't get some realistic advice and give up the notion. Never in my 20 years of brokerage have I ever entered into an LOI with a deposit.

like reply | 0 likes

searcher Harvard University - Harvard Business School University of Oklahoma United States Air Force Academy - 12/30/2020

I agree.. It's a scam. Bail!!!
However, you might just consider doing most of the diligence pre-LOI. Sign an NDA and ask for the bank statements, quicken files, etc. while negotiating the LOI. Chances are pretty high that you'll find something to turn you off. If you go through all that and 1. still like the company, 2. can convince the seller to put the money into an escrow account, and 3. think the seller is honest, then maybe consider it.

like reply | 1 like

intermediary Marquette University - 12/30/2020

Never make a non-refundable deposit and 14 days is 25-33% of the time you'll need - after you get all the information you request.

like reply | 1 like

searcher Ryerson University - Ted Rogers School of Management University of London - 12/30/2020

Agree. I'd say move on to next one, there has to be something fishy going on... If seller and his lawyers are worth even a tenth of their salt, They wouldn't as for something "non-refundable".

like reply | 1 like

intermediary Arizona State University University of New Orleans - College of Business Administration - 12/30/2020

14 days is way too short for any true due diligence. Also, with a non-refundable deposit, you are at a disadvantage in negotiating the closing documents.

like reply | 0 likes

professional University of Wisconsin-Eau Claire - College of Business - 12/31/2020

Before you cut them loose or cut them a check, it would be worth finding out what experience they have had that would make them take such a hard line for the LOI and short due diligence period.

like reply | 0 likes

searcher University of Pennsylvania - The Wharton School University of California, Berkeley - 12/31/2020

Agree completely with Todd and Oskana’s points. Also...don’t do it.

like reply | 0 likes

intermediary Wisconsin Lutheran College - 01/05/2021

Sounds like this seller needs an intermediary to educate them on process. Likely has been burned in the past negotiating directly with buyers because they don't want to pay a fee. Now they go overboard trying to "qualify" buyers. If you can't educate him, look for another deal. I would bet his legal will be on the cheap end and cause problems once you get to docs anyway.

like reply | 0 likes

searcher Texas A&M University - 01/05/2021

This is a HARD PASS-

like reply | 0 likes

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