Search Funders Offering Full Market Valuations and Then Retrading?

by a searcher from Brigham Young University

1 month ago

Hi Folks,

I'm a VP at a LMM sell-side investment bank. I've noticed that in several of my recent processes search funds and independent sponsor types seem to be submitting bids on my deals at a "full" valuation and are typically all cash deals--only before attempting to retrade lower at the LOI stage or within due diligence. Is this a new concerted search fund strategy to try and get in the door with a rich valuation? Or is this simply a coincidence?

1 like
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7 comments

intermediary from Texas A&M University

We've been able to avoid this up to this point, but we have heard from others to be on the lookout for it. When we are talking to searchers who are looking at our deals, we try to get to know them, ask them how their search is going, learn about other deals that they have pursued, etc. We do this out of curiosity more than anything (because we enjoy learning about what people are working on), but it does help to understand how serious the offer or potential offer is going to be. If they've backed out of several deals, we'll try to find out why and if those were legitimate reasons.

3 weeks ago | like reply | 0 likes

searcher from Brigham Young University

My personal model is similar to that of a search fund with the difference that I plan to use an SBA loan for smaller deals and work with investment bankers for larger deals. For me it is just a waste of time to offer something the bank won't approve and I would come across as ignorant or not serious. So, before submitting LOIs, I take the time to seriously validate my valuations with research/benchmarks and my lenders. I might go as high as I can within that sandbox, but that is my ceiling. Sometimes I'm considered and sometimes I'm not.

3 weeks ago | like reply | 0 likes

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