LOI issue with exclusivity

March 22, 2023

by a searcher from University of Applied Sciences in Hamburg, Deutschland

Hi everyone, I am negotiating a LOI with a seller. We are quite advanced, but he confirmed that he has one other highly interested potential buyer which he does not want to shut off. So he is having trouble with the exclusivity agreement in the LOI. After a management meeting I am confident that I would be the preferred acquirer from a personal fit standpoint, but the seller is worried that I am not able to raise the required financing, which is a fair point as of now I have only verbal confirmation from the bank and a few early co-investor talks. The "chicken-and-egg" issue is that the bank will only move forward with the confirmatory financing process once I can provide a signed LOI.
How would you maneuver this?

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Reply by an intermediary
from University of Florida in Orlando, FL, USA

This is definitely a chicken and egg game. We did a deal last year for $7.5MM with a searchfunder and he had 15 investors for the down payment and then did the rest with SBA and Seller financing. It took 6 months to close. It wasn't ideal but the Seller's really liked the Buyer. He was only 27 when he did this deal. One of the most impressive Buyers in my 400+ transactions over that past 24 years. If you want this deal, just go for it. Really show the Seller you will do what it takes to get the deal done. But yes, you should have had the deal prequalified and your investors lined up in advance. That would make the deal better for you and the seller. And if you want exclusivity, I do think a non-refundable deposit would make a difference. Good luck with it. Thanks for the tag ^redacted‌

Reply by an intermediary
from Portland State University in 1811 NW Couch St, Portland, OR 97209, USA

Maybe hard to convince the seller of this, but essentially all LOIs have exclusivity. I doubt the other potential buyer is willing to move forward without exclusivity either? Sometimes there is a shorter milestone on exclusivity where funding progress has to be shown (bank approval, term sheets form private investors, etc) within 30 days or the exclusivity expires. if that is shown, it continues for the 60 or 90 day duration to close the deal. I spend more time on sell-side representation and we have many clients that would prefer to not have exclusivity but it is simply part of the process. Sign it, and then move very fast to make sure the deal can get done. And when deals fall apart, it's more common that not that the other parties are still there as a buyer. Not sure if that helps or not, that's a difficult position!

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