When to Seek Financial Information on a Direct Sourced Deal?

June 06, 2022

by a searcher from Duke University in Tulsa, OK, USA

I wanted to get the industry's perspective on how to get financial information when directly sourcing a business. I have sourced a few opportunities directly and it has been challenging to get any financial information to evaluate if the business is a good fit.
Recently I have been speaking with an owner of a business I sourced directly. We have had a couple of hour long phone conversations and I have driven (2 hours away) to meet with him once already. Based on some of the answers he provided me I suspect he isn't making very much profit if any.
He wanted to have a second meeting involving my wife and child and I politely told him I would prefer to get some financial information before we meet a second time in person. I explained that I thought this was in the best interest of everyone's time especially since I would be traveling and it would easily consume 6-8 hours of my time. Unfortunately his response to this request was quite poor.
For other searchers who sourced directly, how much time do you invest with an owner before requesting financial information?

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

1) At Kellogg I taught "Sellers sell to those with whom they bond". Do not give up the opportunity to bond. His request to meet both of you possibly means he is a family guy. He wants to test the "character".
2) If seller is underperforming, it is likley he/she knows the impact of value/structure, whichh he wil have to asses based on "character"..
3) In sales, every sales person has to make multiple calls to get one order.
4) Regarding financials: CPAs and attorneys advise most sellers not to share financials before getting "comfortable" with the buyer. I am an M&A Intermediary. 80% of the time Sellers give financials w/o me signing the NDA. 20% of the time their attorney wants me to sign the NDA which says I am not suppedto share it and keep my mouth even thouugh they know I am supposed to bring buyers to the table.
5) Financials: Sometimes you have to eat the elephant a byte at a time.
6) Financials: May be seller does not have "financials". He only has tax returns. For most sellers, sharing tax returns is a higher threshold then sharing "financials".

Reply by a searcher
from The University of Chicago in Chicago, IL, USA

I typically ask in the first conversation. At least high level, most people are willing to share. That number often refines when you get an actual P&L, but you want to know high level if you are in the same ballpark as each other. Sometimes you can get a vibe from other proxies (# of customers, # of employees, facility sqft). If after the amount of time you’ve spent, if he’s still unwilling to share, then it’s a red flag imo. Typically, I’ve found people to be pretty open when you say it’s out of respect for their time.

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