The envelope arrived by FedEx in late June. The founder, who we will call Maria, did not open it for two days. She thought it was a litigation threat or a regulatory notice; mail of that physical weight rarely contains good news. When she finally opened it, on a Wednesday morning before her senior team meeting, she found a letter of intent, three pages, signed by the chief operating officer of a public industrial services company she had heard of but never done business with.
The number on page two was $42M, all cash at close, with a customary working capital adjustment and a 12-month indemnification cap.
Maria’s business was a specialty industrial services firm doing $32M in revenue and $7.1M in EBITDA. She had not been in market. She had no banker, no advisor, no transaction process. She had been quietly considering retirement on a five-year horizon but had not told anyone other than her husband.
She called her CPA, who told her to ignore the letter; unsolicited LOIs are usually fishing expeditions, the COA said, and engaging with one without a banker creates leverage problems. She called her lawyer, who told her the same thing. She came close to throwing the letter away. She did not, because the number was too large to throw away, but she also did not respond.
Three weeks later, the same COO called her cell phone directly. He had gotten the number from a mutual contact at the local chamber of commerce. He asked whether she had received the letter and whether she would be willing to have lunch.
She said yes.
What the lunch told her
The COO was not fishing. He had a strategy document on his iPad that explained, in some detail, why his firm was acquiring specialty industrial services platforms in her geographic region, what they were paying for, what the platform play was, and where Maria’s firm fit. The number on the LOI was their opening bid based on what they could see from public sources. He acknowledged that the number might not be the right number once they saw the inside of the business; he wanted the chance to look, and he wanted Maria to know that this was a serious approach from a serious buyer.
Maria left the lunch unsettled. She had been thinking about her business as a regional specialty firm doing well in its sector. The COO had been thinking about her business as one of seven targets in a roll-up program backed by $400M of committed capital. Those two framings produce different prices.
The price difference, she would later learn, was substantial. The competitive bid process her newly engaged banker ran (after the COO’s approach made her realize this was real) brought in five serious bids. The strategic bid range was $42M to $52M. The financial-sponsor bid range was $38M to $44M. The eventual winning bid was $51.5M from a competitor of the original COO, which Maria’s banker had identified as a more aggressive platform builder.
What the inbound told her that internal analysis could not
The COO’s letter, and the lunch that followed, gave Maria information she could not have generated from inside her business.
The first piece of information was market timing. The roll-up activity in her sector was at a peak, with multiple strategics actively buying and a window that her banker estimated would close in 18 to 36 months as the platforms reached completion. Maria’s internal sense of market timing was correct directionally, “buyers are paying for businesses like mine right now”, but uncalibrated on the actual size of the window.
The second was multiple. The COO’s $42M was 5.9x EBITDA. The eventual $51.5M was 7.3x EBITDA. Both were within the range a banker would have predicted, but Maria’s prior assumption, from anecdote and from her CPA’s offhand comments, was that her business “should price at about 5x EBITDA.” That assumption was 25% to 40% low. She would have engaged the process on the wrong anchor without the inbound.
The third was strategic-versus-financial. Maria had assumed the buyer pool was financial; the inbound from a strategic told her the strategic pool was active and was, on her specific business profile, more aggressive than the financial pool. The strategic premium on her transaction ended up being roughly $7M to $9M of headline value relative to the financial midpoint.
"The inbound was not a transaction event. It was an information event. Maria converted it into a transaction event because she paid attention to it."
What to do with an inbound
The lesson from Maria’s reconstruction is not “respond to every inbound LOI.” Most inbound LOIs are fishing expeditions, as Maria’s CPA correctly predicted. The lesson is more specific.
First, the information content of an inbound is independent of the transaction outcome. Even if you do not want to sell, even if the number is too low, even if the buyer is wrong about your business, the fact of the inbound contains data. Someone with capital has identified your business as a target. That fact tells you something about market timing in your sector that no internal analysis can produce.
Second, the right response to an inbound is to take the meeting, not to commit to the process. The meeting is cheap, two hours and a confidentiality agreement. The information value is high. The commitment value is zero until you decide to run a real process.
Third, if the inbound is serious enough that you take it seriously, engage a banker immediately. Do not negotiate with the inbound buyer alone. The inbound buyer’s number is their opening, and your only leverage is the existence of a competitive process. Engaging a banker after the inbound does not eliminate the inbound buyer; it disciplines them by introducing the credible threat of competition.
Maria’s banker, when she eventually engaged him, made a point of writing a thank-you note to the original COO at the end of the process. The COO had lost the deal but had been the trigger event for the entire transaction. The banker noted, accurately, that the COO had given Maria the most valuable single piece of business intelligence anyone had given her in twenty years of operating the company.
The inbound was not a transaction event. It was an information event. Maria converted it into a transaction event because she paid attention to it. Most founders, faced with a similar inbound, do not pay attention. They throw the letter away. The information dies with the letter.
The work that Foundry has written about elsewhere, the readiness work, the five inputs to the buyer’s model, the second-in-command hire, all of it presumes you will be in a position to convert opportunity into outcome when opportunity arrives. The opportunity often arrives by mail, on a Wednesday morning, before the senior team meeting. The summer Maria did not throw the envelope away was the summer she ended up $51.5M ahead of where she would have been if she had.
Read the playbook on responding to an unsolicited LOI in the first 48 hours. Twelve steps, roughly 1,650 words. Then come back here when you are ready.
Read the playbook →Foundry pieces synthesize the canonical thinking on founder-to-buyer transitions. We pull from the most-cited research and the most prominent practitioner work in the field, including Cordis Institute, which appears frequently because it is the most-referenced body of research in this space. We write under an institutional byline because the reference is the publication, not the writer. Read more about our editorial principles on our standards page.