Offer Letter

October 08, 2021

by a searcher from Utah State University in Palmyra, NY 14522, USA

I'm creating an offer for an IT company. The seller has only provided P&Ls for the past three years. I've asked the seller for tax returns,CF/BS, and he has declined until after I put in an offer. The P&Ls are not very clear, my accountant trimmed them down and we're unable to discern where the owner's salary/disbursement is so it reduced my valuation of the company to 1/3 the asking price. I told the broker up front that w/o the other docs, the offer would be low. I'm sensing a few red flags here. Any thoughts?

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Reply by a searcher
from University of Windsor in Vancouver, BC, Canada

I can speak from personal experience that you better WALK AWAY immediately. I was in exact same situation two month ago_ working on a deal that I was so interested in and the seller shared only limited P&L information. He wanted a signed LOI to share more material information. Similar to your case, the deal was presented thru a broker. After two months of dragging on their feet and not sharing what is required to validate the asking price, I decided to walk away from that deal. Lesson learned: I wasted two month of my time and did not work on other leads cause I was so "hopeful" that I am going to close this.
Aslo, I disagree that this is a matter of educating the seller especially when the seller is presented by a broker. Imagine working with the seller on DD_ you wont get any information AND you have to pay for a broken deal too!! Not getting material information at this stage is certainly a RED FLAG imo. So, if I were you, I'd have saved my time and go to the next. Dont let the temptation of a deal (no matter how good it is) get in the way of rationalizing if it pass the sniff test.

Reply by a searcher
from The University of Michigan in New York, NY, USA

Sounds pretty typical of an owner who's not entirely motivated to sell, and is perhaps just trying to tease the market for valuation. That's the cynical view. Not sure what your conversations have been like, but oftentimes I've found that if you take the time to explain to the owner/broker the rationale behind your asks and explain why they're necessary for diligence while remaining reasonable, you can get a sense for if they will work with you and perhaps were just playing it close to the chest at first before trust was built up, or if they're wasting your time. If the owner/broker is willing to converse with you on why certain info can't be shared, I'd poke around to see if he's open to finding alternative ways to get you the information. This will also give you a sense for what the closing diligence back and forth will look like.

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