Lender FDD Question

June 09, 2023

by a searcher from The University of Chicago - Booth School of Business in Chicago, IL, USA

Seller reluctant to provide more than TTM information to buyer group in initial LOI and FDD. Does anyone have any experience in what the lookback is for a Lender and the Lender FDD? Been trying to coax for a bit.

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Reply by a searcher
from University of Tennessee in Nashville, TN, USA

I, personally, would push back on a TTM-only presentation prior to submitting an LOI. First, the presentation is usually not reflective of a complete fiscal year for the business. Second, I value the ability to review multiple prior years' (2-3) financial statements (both balance sheet and income statement) in order to perform financial analysis (including creating a statement of cash flows), identify trends and outliers, and form questions about the operations that may not have been disclosed. Third, the TTM period could be an outlier of normal revenues, expenses, or both. Brokers are retained to attract buyers and there is no better way to do so than promote factual but misleading information. Timing of revenues and expenses also needs to be factored into the discussion of what's included in TTM, especially if the financial presentation is cash-basis. We had a target's broker promote $5M in TTM EBITDA only to have the QoE determine that the company actually had a TTM loss specifically due to timing issues.

Should the Broker/Seller refuse to release any additional information other than the TTM to procure a LOI, I would submit a Basis of Value section in the LOI with a notice that the final offer price is subject to change (re-trade) should the actual TTM prove to be less than what was reflected in the Broker/Seller-provided TTM or an anomaly once prior-years' financials are received. That provides their side an option to provide the requested prior year financials pre-LOI or deal with the results of the diligence review.

Reply by a professional
from Tulane University in Portland, ME, USA

I am an FDD consultant so do this often. My standard is to get monthly information for the two most recent complete years and as many months are as closed in the current year (e.g. Jan 1, 2021 to April 30, ###-###-#### TTM is not enough to get a proper trend to be able to normalize a business. Oftentimes, I go even further back at least on an annual basis to see macro-trends such as COVID impacts. There is no standard across lenders FYI, it is ultimately whatever they are comfortable with.

Pre-LOI, however, TTM only is not unheard of and should be ok for an offer, then you can dig in further once LOI is signed.

Happy to discuss further: calendly.com/petraccagroup/30min

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