A buyer contacted me the other day indicating that when asking for information on a company he “met with an almost harsh reply from the broker” “We first need an offer.” (A catch-22 as one cannot put an offer without truly doing due diligence). Well, this brings up several points and I will address a couple of them.

I wrote back as follows: You cannot put out an offer unless you have enough info to do your valuation. Generally this means at least two years of accountant prepared financials plus an interim in-house statement. Financials mean balance sheet and P&L plus reconstructed profit as estimated by the seller/broker. Reconstructed profit means base profits plus all the addbacks. Alternatively the broker can furnish you with his own summaries of those numbers. I can use broker numbers if they are detailed enough. Sometimes the seller does not want to share the actual reports but you absolutely should be able to get at least basic summary numbers.

On top of this the buyer should have a basic understanding of what the business does, the state of the industry and he should have a meeting or at least a couple of conversations with the seller under the belt.

Now I would not recommend the first time buyer make offers using insufficient data. But I do it often just to save time. I can do this because all my offers are made through non-binding LOIs and I will modify my offer as the unfolding story emerges.

And here is one other key point. Make no mistake, this buyer is not yet doing due diligence. Due diligence is an extensive process started AFTER you have a signed offer. The buyer here is looking for preliminary info (as described above) with which to make an offer. He needs to insist on the basics. I constantly run into unreasonable brokers who will waste my time. I have to politely but firmly tell them what I need.