Why Pre-LOI Seller Relationships Are Where Deals are Won/Lost

This Week in ETA:

Most searchers treat the LOI as the starting line. In my experience, it's closer to the finish line of a race that started the moment you first reached out to the seller.

A few things I've seen make a real difference in that window.

Be clear on what you're looking for and why their business fits. Sellers talk to a lot of buyers. The ones who stand out are specific - they've done their homework, they understand the business, and they can articulate why this opportunity aligns with their background and goals. Vague enthusiasm doesn't build trust. Specificity does.

One of the best ways to do this is with a simple one-pager about who you are and what you're looking for. Not a deck, not a pitch - just a clear, human explanation of your background, what kind of business you want to buy, and why. Same goes for a personal website and LinkedIn page. Sellers are googling you. A page that sounds like a person, not a private equity firm, goes a long way. Your edge over institutional buyers is that you're not PE - don't give that up by sounding like them.

Ask good questions and let them talk. Most sellers have never had someone genuinely curious about what they built. Ask about the history, the hard years, the things they're proud of. You'll learn things no CIM will tell you, and you'll build rapport that pays dividends later.

Understand their "why" before you talk price. A seller who's retiring thinks very differently from one who's burned out or navigating a health issue or a partnership dispute. The structure that works for one won't work for another. If you don't know why they're selling, you're negotiating blind.

When you're ready to submit an LOI, ask for a decision the same day. It signals confidence, creates appropriate urgency, and keeps your offer from sitting on a desk while they shop it to other buyers.

The sellers who choose you aren't always choosing the highest number. They're choosing the person they trust to take care of what they built.

Partner Perspective:

Caleb Basile, QoE Prep: Not All Add-Backs Are Created Equal

Sellers love add-backs. Buyers love believing them far too often. A Quality of Earnings report will accept, deny, or recalculate them - and the difference matters more than most people realize going into diligence.

Here's a quick breakdown of what actually holds up under scrutiny.

Owner salary gets added back, but only the portion above market rate - and only if the owner is truly stepping back.

Auto, insurance, and tolls are generally fine if they're personal and not tied to operations.

Charitable donations usually pass.

Losses from unexpected events - a flood, a one-time legal dispute, etc. - can be added back, but only if they're truly non-recurring.

If a business seems to have a "one-time" event every other year, that's not a one-time event.

Where it gets messier: meals and entertainment that drive revenue aren't really discretionary.

Gifts often help retain clients or employees; I typically don't accept those.

Bonuses that keep key people in their seats shouldn't come out of EBITDA.

Family salaries get normalized to market, not zeroed out.

My personal favorite: owner phone expenses or other little add backs. If that line item is supporting your valuation, you've got bigger problems.

Aggressive add-backs aren't just challenged during diligence; they show the buyer that a seller isn't being straightforward or they are just lowering their taxes. Crazy addbacks kill deals as often as QoE Providers do.

Feel free to sign up for office hours HERE. This will allow you to learn about financial statements and ask any questions about your deals! Or, reach out at [email protected].

Plus:

• Sell-side broker Jackie Hirsch breaks down ways that independent sponsors can win out against private equity - and stories from the field of when they didn’t.

• Jacob Hall of Kando Capital delivered a sharp reality check at SMBash: the ETA playbook was written for 2019-2021, and that world no longer exists. Cheap capital, cooperative sellers, and multiple expansion are gone. His Four Horsemen of ETA: max leverage, overpaying, hockey-stick growth assumptions, and going it alone - are worth keeping front of mind. I liked Daniel Giles' summary of it HERE.

Question:

Hit reply and tell us - What tactics have you used to navigate the pre-LOI relationship with a seller?