Sellers increasing their ask post LOI presentation

by a searcher from University of Richmond

2 years ago

We are working on a deal and have worked through an IOI that included a window of our value and multiple offer.  We subsequently submitted an LOI with a specific overall deal value and multiple.  

The sellers responded with a new financial presentation that essentially increased their expected value by 17%.  

Question is:  Have y'all seen that often. In discussions, they say they are turning away other LOIs to deal with us but I am wondering what you may have experienced and what methods you used to mitigate this direction of negotiation.

We do want to make the acquisition but not at this new number.

2 likes
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6 comments

searcher

I think you need to ask the seller to substantiate the difference. Was your IOI five months ago and now the company has actually outperformed its 2021 projections and increased its '22 backlog? Did it sign a new major customer or increase prices in an unexpected contract renewal? That may be worth a higher price. Was your IOI 3 weeks ago and nothing has materially changed in the business's performance in the interim? That would be cause for concern. The way the seller treats you before signing the LOI can be a good indication of how they will treat you after the LOI -- in what will be one of the most important transactions of your career, make sure you're comfortable with the ethics and representations of the counterparty. Increasing their asking price from IOI to LOI isn't cause for concern in and of itself -- it's the restated financial projections that are of note.

2 years ago | like reply | 1 like

professional from Marquette University

^Michael Girdley hit the nail on the head, which numbers are accurate (and do the new ones contain AAA - (excessive) add-backs, adjustments, and assumptions)? Projections are pretty meaningless unless you get past projections to compare to actual results. I love it when CIMs show sales going up 10% a year for 5 years and profit increasing by 18% every year. Five years, these days it's hard to project 5 months (sometimes 5 weeks). If you like the business let the seller know you'll move forward and to expect a lot more diligence to justify the higher price. If you've lost trust then walk away and find another one.

2 years ago | like reply | 1 like

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