Many times, when I sell a company, we get multiple offers at a variety of prices. It is easy to choose if there is a large difference in what is being offered. But what if the offers are similar? Who do you choose?
It is important that you choose carefully because if it does not work with the chosen buyer at the end of exclusive period, those other Letters of Intent (LOIs) probably won’t be there as offers any longer.
Just recently, my client exited a 45-day exclusive period without a deal. When we went back to the other 5 companies that submitted LOIs previously, not a single one came back with their original offer.
Why does this happen?
The 45 exclusive period that the seller has to give the buyer when the LOI is a long time. Lots changes in business in that period of time. What the buyer valued then may not be what they value now. Business conditions may have changed. No one likes being the “second choice”. They reason if the first buyer rejected the seller, there must be something wrong or changed even if this isn’t the case.
If buyers do resubmit their LOI and offer it again, they typically are doing more due diligence and it usually is at a lower price.
So how do you choose the right LOI for your company?
Before the LOI is signed, have the buyer do as much due diligence as possible so there are no surprises. Understand how the buyer is going to pay for the acquisition and if the final decision maker has already signed off on the purchase? Has the buyer done similar deals in the past and how did that process go?
Don’t be afraid to ask these questions. Deals after an LOI are becoming more difficult to close than they were a few years ago. Choose carefully!