Unethical search fund tactics
November 05, 2024
by an intermediary from Stanford University in New York, NY, USA
Would love to create a post here flagging some companies, search funds, investors, or even businesses that are bad actors. This is so we all can avoid the bad deals. Maybe we could comment on what we have seen?
Current list:
Epoch Equity - Vlad Ilyusha
Asif Ansari - Tanin Group
from Pepperdine University in Portland, OR, USA
However, I would suggest being careful in labeling people bad actors. For example, you might perceive an investment banker or business broker is doing something unethical but there might be more going on behind the scenes than you know, and it might be actions of the seller themselves which create this appearance, or some outside issue that's beyond the control of the seller or i-banker but which can't be disclosed..
I was representing a seller a few years back in a sale to an independent fundless sponsor. We got to the very end of the deal and literally were trying to gain agreement on a couple of sentences in the legal documents before imminently closing. They were relatively minor issues that on most transactions I would assume there would be no problem finding common ground. The buyer terminated the deal. I couldn't get them to reveal why - it didn't make sense. They were vague but said that the investor had decided not to move forward and they had a bit of a dispute. I was thinking "How can you get to this stage of the deal and have an investor fail on you when everything was a green light the week before, including from this investor? Something shady must have been going on." A few weeks ago I was reading an article in the WSJ and it included information about the family office investor that was backing the independent sponsor - what I learned from this article was that at about the time we were trying to get the transaction closed this family office encountered very significant legal trouble. I don't know if the independent sponsor was privy to this but bound by a NDA between them and the investor, or if the investor didn't tell them. But it makes a lot more sense now knowing that this was the case. Honestly, I perceived that the independent sponsor had done something to screw up their relationship with the investor. It wasn't the case.
from United States Naval Academy in Colleyville, TX 76034, USA
1. A service business being sold "for retirement" with a huge legal bill in the add-backs. Broker said it was a divorce expense. Google revealed that it was likely due to the seller being sued after an employee was arrested for sexually assaulting customer. The state had revoked the professional license of the seller.
2. A home services business being sold "to pursue other opportunities." Checked the incorporation papers with the state, found the sellers name. Google tells me that the "other opportunity" is prison since the seller was under indictment for fraud.
Twenty minutes on the web saved me hours of working a deal.