IOI / Indication of Interest

Question 1

• What do sellers really care about in an IOI?

Answer 1

o Purchase price
o Background reputation of sponsor
o Legitimacy of buyer

Question 2

• What are some nuances to make clear when it comes to purchase price in the IOI sent to seller?

Answer 2

o State a range of EBITDA in which the purchase price is based on

Question 3

• Why at the IOI stage is a range used for purchase price and EBITDA assumption?

Answer 3

o In depth due diligence has not been completed yet so there needs to be flexibility

Question 4

• Is an IOI binding or non-binding?

Answer 4

o Non-binding

Question 5

• What is crucial to convey to a seller in an IOI?

Answer 5

o You have a credible source of debt and equity financing

o Position your firm as the ideal partner

Question 6

• What does cash free debt free mean?

Answer 6

o The company must arrive with no cash and no debt/liabilities and sufficient working capital to continue to operate
o Enterprise value. We say no cash no debt so owners understand

Question 7

• Why is working capital important?

Answer 7

o A business should be able to continue operating without having to put money in post transaction
o Prevents seller taking cash out of business beyond working capital required to continue

Question 8

• What is an earnout and when do you see them?

Answer 8

o Extra consideration if the company hits certain targets/milestones. Normally when the owner intends to stay on in the business through rolling over equity
o Usually when there is a disagreement on growth targets and thus valuation

Question 9

• What is a management rollover?

Answer 9

o When the management of the target company converts some of the equity in existing company into the post LBO company