Question About Proof of Fund for Brokers

searcher profile

January 28, 2020

by a searcher from Columbia University - Columbia Business School in New York, NY, USA

I'm a self-funded searcher and I have a deal where I have made it to the last round of bidding. The broker agrees that my offer amount is in line with others and there's good chemistry between me and the seller.

However, they mention that my ability to raise the funding needed is of concern as there are other parties that have the liquid cash on their balance sheets to buy the company. I have already provided support letter from equity investors in combination with a soft commitment from a bank. Collectively this exceeds my offer price but it doesn't seem to satisfy the broker.

I obviously don't have the liquid cash on my balance sheet and can't compete on that. Any suggestions on what else I can do to alleviate their concern? Thanks.

9
14
416
Replies
14
commentor profile
Reply by a searcher
from University of Virginia in New York, NY, USA
Not sure what type of auction is being run but I'll assume that this is the last stage before exclusivity is awarded and any real diligence dollars have been spent. I suspect that either a) other buyers are in the same boat b) cash offer is significantly lower than one with a financing contingency. If everyone is essentially equal you need to distinguish yourself from the other buyers by being proactive. The broker is just trying to prevent a broken deal and having to start over again.

I assume you have completed all your preliminary diligence and would be satisfied moving forward with the facts as presented. If the goal is to get exclusivity offer a good faith deposit along with an extremely detailed LOI that covers the key aspects of a purchase agreement (price, working capital target, escrow, etc) to demonstrate you are a serious buyer. Make it refundable in the event that there is a material change during confirmatory due diligence e.g. EBITDA $300k vs. $400k represented, or if seller balks in contract negotiations to give yourself an out.

Communicate a realistic timeline e.g. 90 days and inform them who you have retained for legal, tax, and QofE work. The seller and broker want to know that you have a vested interest and are spending real dollars to effectuate a transaction.

Good Luck.
commentor profile
Reply by an investor
from Fort Lewis College in Denver, CO, USA
This is a common challenge early in your career/search/new business when you depend on outside capital partners. I remember having those same conversations, but within a short period of time (for me) it really was not an issue any longer. What had changed? I didn't have any more money, but I had WAY more confidence! I knew I had access to the money and I acted like it. That was a game changer! You don't have to be a jerk, just be confident!

One more observation. That broker is still talking to you for a reason. It's likely he doesn't have all of these qualified buyers that he claims. Brokers will tell you that few of their buyers actually have significant liquidity. It depends on the size of deals you are working on, but on the smaller side it's much more unusual than Brokers would have you believe. I suspect they are using it to negotiate a better deal for their seller.

You could always leverage one of your investors to offer the proof of liquidity they need.
commentor profile
+12 more replies.
Join the discussion