Year to date financials

August 25, 2023

by a searcher from University of Stellenbosch in Littleton, CO, USA

Is it a red flag if the seller and/or broker seems unwilling to provide the most up to date year-end financials prior to the LOI? (or seem to drag their feed with providing it). For me its important to review latest the financials since the year is already deep into Q3 and YTD financials should tell a story about where the business is trending. Or am I just paranoid and should go ahead and issue the LOI, and deal with the latest financials during due diligence?

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Reply by a searcher
from Bishop's University in Oakville, ON, Canada

Might not be a red flag in the sense that they don't want to disclose the info - very possible that, as the other posters have noted, this broker/seller simply feels they've given you enough to submit a non-binding bid (and this would be a valid view if other bidders have already submitted LOIs). I would just ask the broker straight up: are the YTD results in line with expectations for the full year or is there a shortfall that you should contemplate in the LOI assumptions and valuation? Given that the valuation set out in your LOI will be based on the target company achieving a certain level of verifiable financial performance during the YTD and LTM, it wouldn't make sense for them to withhold bad news at this point. The bigger potential flag is the possibility that the company does not produce interim financial statements, which increases the deal risk on several fronts and could lead to higher diligence costs.

Reply by a searcher
from Northwestern University in Chicago, IL, USA

I'm in the same boat Olaf. I was ready to make an offer once I got H1 and the broker was fine with that ask when I made it. H1 was important to my valuation as well as addressing a key question - a regulatory change in the beginning of the year may have reduced servable customers. I've followed up a few times and broker also doesn't know why there's such a delay. I feel like the seller may be having second thoughts. I've wondered if I should have just offered, but in my case I don't think I could be confident making the offer without this last piece of info.

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