Search Funds: Broken LOIs and Buyer Behavior
Broken LOIs and Buyer Behavior
Insights by Candor Advisors · Candor Advisors
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Show Notes
Key Highlights:
1. Understanding Search Funds: Search funds are a newer type of buyer often led by individuals with limited experience in acquisitions. Unlike traditional private equity firms, search fund leaders may lack experience in deal execution and due diligence.
2. Challenges with Search Funds: A significant issue with search funds is their inability to close deals. Many search fund leaders have never bought a business before, making it difficult for them to secure financing and complete transactions. This can lead to broken LOIs, where deals fall apart after months of due diligence, wasting valuable time for sellers.
3. The Risk of Broken LOIs: According to recent data, most broken LOIs result from buyer behavior during due diligence. Sellers must be cautious about entering into exclusivity agreements with buyers who may not have the resources or experience to close the deal.
4. Importance of Buyer Evaluation: Sellers should thoroughly vet potential buyers before accepting an LOI. Ensuring that the buyer has the necessary experience, financial backing, and ability to conduct due diligence is crucial to avoid disruptions in the sale process.
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