How many LOIs did you send out last month?

July 19, 2024

by a searcher from Duke University - The Fuqua School of Business in Denver, CO, USA

I think ETA Twitter skews my perception of things as I feel like I'm falling behind in terms of flow and LOIs sent. I'm fairly industry/location agnostic, but I have a high bar for sending out an LOI (I see quite a few red flags with most CIMs, but maybe I'm too pessimistic). I was curious for the searchers out there: 1/ how many LOIs did you send out over the last 1-2 months and 2/ what percent of these came from the broker/listed channel vs other/proprietary?
It would be interesting to get a gauge from others.

0 Likes

38 Replies

329 Views

Replies

Reply by an investor
from University of Pennsylvania in Charlotte, NC, USA

Thanks ^redacted‌. I agree with those who caution against sending an LOI before you are willing to stand by it, absent unforeseen negative surprises, and see those transaction terms through to closing. The LOI states your actual intention to close a transaction based on the terms set forth, not your possible interest - that's what IOIs are for - nor your desire to learn more. Not only does nobody like a retrade as ^redacted‌ aptly said, and not only will it get you blacklisted in a hurry by quality brokers as ^redacted‌ suggested, but also it sets you up for failure as you waste your and the seller's time moving forward with due diligence when your "offer" started only with a rough guess at appropriate valuation and terms. Further, how professional does this look to potential investors: "Hey I signed an LOI for a $20MM purchase price, but I didn't do any substantive due diligence so no clue what's under the hood or what it's actually worth, so how about ponying up for my WAG $20MM deal?" Maybe that works for friends, family and those whose pledge of equity support is as meaningful as your LOI's intention. Unprofessional LOI blasters - sorry, that is redundant - are giving searchers a bad name

Reply by an investor
from McGill University in San Diego, CA, USA

From the most recent Stanford Search Fund Study - "searchers signed on average 3.6 letters of intent (LOI), the first of which was signed, on average, 7.8 months into the search". That comes out to about one every 6 months, before eventually transacting. That's an average, and as you can see on this thread some are issuing LOIs at a far faster pace. I can offer two pieces of advice.

First, you may want to reach out to Rocco/Sean on this thread to compare your deal scorecard to theirs (do you have different standards?), industries of interest (are you searching in the wrong ponds?), number of brokers you are talking to (not enough?), and other sourcing techniques to isolate key differences in outcomes.

Second, to close a deal, you need shots on net. A common mistake searchers make early on is that they expect to find a "great" business at 4-6x. If you are lucky you will find a "good" business, but more likely than not, at 4-6x, you will probably end up with a "good enough" business that you can ultimately improve. So, here's an idea. The next time you come across a company that is a 6.5 or 7/10, in an industry you like, consider sending an LOI. There's a lot of value to getting a "rep". This will sharpen your pattern recognition, help you understand the deal process and you might very well be surprised to the upside in diligence. Best of luck to you! I hope this helps

+36 more replies.

Join the discussion