How Do Deals Work in Florida?
February 02, 2023
by a searcher from University of Virginia-Darden - Darden School of Business in Richmond, VA, USA
I went to Florida from Virginia and found a company that I liked that was for sale. I met with the seller at the business location and then the seller and the broker at Starbucks. In the meeting I said "For next steps I'll draft a (binding) LOI and send it to you." They said that was fine. Later I sent the LOI as promised. The broker told me that LOIs were unacceptable and that he wouldn't advise to sign any LOI. He said that in Florida the custom isn't to put businesses under LOI but to immediately draft a purchase agreement. Has anyone else heard of this? Have I just been under a rock in Virginia? Any idea why this man didn't say that to my face when I left my family to go get tea with him and the seller? I'm in the dark here. Any answers that help build perspective will be appreciated.
in Tampa, FL, USA
For smaller deals say sub $1-2m in Enterprise Value most brokers are going to push you towards (or would prefer you to) moving straight to using the standard BBF APA once you have agreed terms, this is pretty NORMAL. The standard APA is pretty balanced and middle of the road for both Buyer & Seller, you have the option of putting the deal subject to financing.& DD so Buyer has a way out. I can't remember the exact verbiage but the DD contingency is very explicit and essentially says Buyer can pull out at it's sole discretion if they find anything in DD that they don't like.
On the other hand the $2-3mm + EBITDA deals would not be treated in the same way. Standard process would typically be LOI with exclusivity > DD > Legals > Close. But your "normal" business broker typically wouldn't have the mandate for these size deals, you'd be dealing with a Boutique M&A firm or smaller IB.
I speak only from actual experience here I would say If you come across a smaller deal again down here in FL that you like, put it under contract via the APA immediately then do your DD later. I'm fairly sure the broker you dealt with had no ill intent they are just operating on that end of the market.
Continue searching and goodluck!
p.s I am not a broker or attorney just someone with boots on the ground!
from Florida International University in Miami, FL, USA
Remember, an LOI is a non-binding document that outlines the basic terms and conditions of a proposed transaction. It is meant to help facilitate negotiations and provide a framework for the parties to agree on the key terms of the transaction. I will never jump right into an APA. On the other hand, an APA is a binding agreement that sets out a transaction's specific terms and conditions. It provides a clear and legally enforceable framework for the transaction and reduces the risk of misunderstandings between the parties. An APA often includes more detailed provisions, such as representations and warranties, covenants, and closing conditions, which can better protect the acquirer's interests.
Don't get too caught up on whether the LOI is binding. If the broker shops your offer around, there is nothing you can do unless you spend thousands of dollars to sue the broker, and even then, there is not much of the possible outcome. Concentrate on what sets you apart, what is the expectation, and what is important to the seller, and try to get as close to that as possible. Remember, your end goal is not Searching; It is to CLOSE DEALS!!!