Raise a fund with Deals? Or without Deals? How would you do it?
May 02, 2019
by a searcher in Sheridan, WY, USA
On a road show recently to many financial institutions locally to secure financial commitments on the leverage side regarding the search, the typical response from the bankers and investors locally is "we won't make a commitment to anything until we have a deal to analyse in front of us."
I believe the conundrum for Searchers in this type of situation (providing they have a strategy for a particular industry or sector where they have plans to consolidate, is providing targets with some sort of proof of funds or bank endorsement letter which would presumably by requested by targets.
Now this would be an issue with regards to moving forward with influencing the target to disclose basic preliminary financial information (Revenue, EBITDA, FCF). Therefore if a Searcher is unable to provide a target with such documentation as mentioned above, how does the Searcher then get to the point of uncovering deals to bring to the table for investors to look at? (This is outside the realm of brokers, finders, buy-sell advisors etc,) This is from the perspective of making those cold calls and setting appointments.
Would love to hear the take on this from the community.
Cheers.
from University of Pennsylvania in Philadelphia, PA, USA
Intermediaries or sellers often request proof of funds to avoid 'traumatic' experiences. In particular, there's a history of past deals (mostly with searchers) that have fallen through due to an inability to obtain funding. 'Proof of funds' is just a signal to ensure that potential buyers are serious about potentially making a deal.
Even if you don't have proof of funds, I've found that you can circumvent a lot of potential objections by being credible. The simplest way to do this is to be honest about your situation, emphasize your relevant experience, ensure your communications with brokers/sellers is well crafted, and have the 'basics' like a website in place.
Outside of this, it might be helpful to talk to potential investors. Emphasize that you are self-funding your search but might want to partner once you find a potential acquisition target. Generally, investors will be willing to provide letters of support if it means they get preferred access to a deal. Having these conversations is helpful anyways to build relationships with investors.
from University of Pennsylvania in New York, NY, USA