PREP not PRE – LOI Due Diligence

Let’s Demystify Pre-LOI Due Diligence

Defective pre-LOI due diligence enables dumb deals.

  • It’s why so many searchers can’t make a deal, or they buy the wrong businesses, or they buy the right businesses the wrong ways.
  • It’s also why hopeful owners lose their opportunity to sell, or sell on terms that excessively favor buyers.

See below: Questions being asked by people wanting to buy or sell businesses.


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Besides not knowing how and when to conduct preliminary due diligence, ill-informed and ill-advised searchers and sellers mostly miss the point of it:

  • Get the parties to the dealmaking table or abort the potential transaction
  • safely and sooner.

So, Ted J. Leverette, The Original Business Buyer Advocate ®, coined a new term.

PREP-LOI Due Diligence ™

Searchers submit LOIs that effectively say “I may want to buy your business, and this is what I need to know before I can submit my offer.”

Why don’t we acknowledge what it really is?

  • Prepping.

 

How do buyers and sellers go wrong?

They misconstrue preliminary LOI due diligence to simply mean fact-finding so as to determine whether or not a deal might be possible.

  • More astute people realize what’s really happening. They’re setting the stage, they’re prepping, for negotiations and dealmaking.
  • And that’s how they, upfront, begin to get negotiating advantages.

 

These are among the questions being asked by people wanting to buy or sell businesses:

We’ll open with 60-seconds about this avoidable mess:

  • What lessons are in the Elon Musk fiasco with Twitter?

The really good news is he’s shown us nearly all the most damaging behaviors a wannabe acquirer can make. You can see the list in my article.

This has been requesed by registrants.

  • Topics, below, are not in any kind of priority.

Let us know which one(s) are most important to you.

  1. What lessons are in the Elon Musk fiasco with Twitter?
  2. What is the biggest mistake searchers and sellers make pre-LOI?
  3. What do buyers and sellers hide the most?
  4. How has the pandemic affected preliminary due diligence?
  5. How email (especially Gmail) hurts buyers, sellers, brokers, etc.
  6. What’s the purpose of preliminary due diligence?
  7. Practical scope for Pre-LOI financial due diligence?
  8. How deep is enough/too much for pre-LOI due diligence?
  9. How do the drivers of preliminary due diligence differ for searchers?
  10. What’s the optimum timing before aborting or submitting my LOI?
  11. How am I supposed to know what the seller wants to see in my LOI?
  12. Can I change my LOI offer?
  13. How do brokers and sellers view self-funded buyers versus search funds?
  14. What should buyers and sellers do before Prep-LOI Due Diligence?
  15. If it’s a good idea to do it, how should a searcher introduce creative deal structure pre-LOI?
  16. How can I level the buy/sell playing field? (Broker/seller advantages?)
  17. When (and how) does preliminary due diligence begin?
  18. Why is it important?
  19. What goes wrong during prep-LOI due diligence?
  20. How do buyers/sellers negotiate against themselves?
  21. What if the seller or bank demands my personal guarantee?
  22. What kinds of vulnerabilities can be fatal?
  23. What if the seller won’t partially finance the buyer?
  24. What about (flexing) working capital?
  25. What about employees, customers, suppliers, sources of financing?
  26. How deeply should I probe, anticipating seller Representations and Warranties?
  27. How much do I collaborate with sellers/brokers about the pending LOI?
  28. How can I use it to make a better deal?
  29. What do brokers think about prep-LOI due diligence?
  30. What if the price buyers propose is not justified after the LOI?
  31. What about if buyer competition is present?
  32. What are the roles of my advisory team during prep-LOI diligence?
  33. What is the scope of due diligence before submitting an LOI?
  34. What is a reasonable budget for professional fees?
  35. Where can I get a checklist?
  36. How am I supposed to cope with the abundance of documents, communications, etc.?
  37. What if I can’t afford paying to outsource due diligence?
  38. What are the considerations for outsourcing due diligence?

 

Never forget your lost income opportunity.

Irrationally deferring completing an M&A transaction presents at least two kinds of (avoidable) potential losses. (1) Missing out on buying the best opportunity that you’re going to find. (2) Lost income opportunity, which is what you would have earned every month longer it takes to complete your deal.

Tip: Search more effectively to find and complete better deals sooner.

 

What about Business Buyer Competition?

What’s your competitive advantage?

See how to avoid or beat it.

 

Improve your search and dealmaking:

Schedule an hour of coaching with Ted Leverette, The Original Business Buyer Advocate ®

Email Ted J. Leverette, The Original Business Buyer Advocate ®. “Partner” On-Call Network, LLC

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