Three M&A Deal Killers to Avoid

When selling your company, you can – and should – expect fallbacks and hiccups along the way. It’s the nature of business. But permanently losing a deal can …

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When selling your company, you can – and should – expect fallbacks and hiccups along the way. It’s the nature of business. But permanently losing a deal can be detrimental to your company moving forward. Your staff might sense a suddenly unstable environment, which could impact their productivity and your retention rates. Your day-to-day operations may also suffer, and you may potentially lose any future opportunity to sell your company. If and when you do sell your company, you may discover that the sale price is reduced significantly, as a result of the earlier deal that collapsed.

While challenges are to be expected during a sale, you shouldn’t have to worry about a deal completely falling through. Fortunately, there are ways to prevent these types of catastrophes. Many broken deals stem from one of three reasons. When you understand and can prepare for the issues relative to your eventual business exit, you can significantly improve the chances of navigating through inevitable obstacles to ensure the deal follows through to the end.

1 – Avoid Losing Your Credibility as A Seller

Credibility plays an enormous role in giving your potential buyer a sense of assurance as he or she works toward buying your company. Losing your credibility as a seller could be the tipping point that sends your buyer running.

Sellers can lose their credibility in a number of ways, including having to report a material miss to forecasted results. Doing this tells the buyer that the there’s a significant lack of revenue predictability and execution.

Sellers also shouldn’t over-deliver with their forecasting.  In fact, the inverse is ideal (under-promise). Support your forecast top-down and bottom-up, and give yourself a comfortable margin of error (anywhere form 5-10%) to avoid providing your buyer with an unsupportable forecast.

You can lose your credibility as a seller if your buyer comes across some nasty surprises during due diligence. It’s good practice to air all of your company’s dirty laundry early on, rather than wait until later in the process. If you withhold information early on because you’re afraid it’ll cause the deal to stall, then you can assume the same results even later on in the process, when the repercussions of a fallen deal are far more disastrous.

If you’re still struggling with the idea of willingly presenting company problems to your buyer, consider this: no company is perfect. Buyers will raise a wary eyebrow at sellers who present a flawless company. If you have issues that should be made aware, do so early on, and present the strategies that are in place to remedy these challenges.

2 – Time Can Kill Deals

A rolling stone gathers no moss. The same can be said for the sale of your company, particularly if your buyer is actively seeking and closing deals concurrently. When a deal drags on, people lose focus and turn their attention elsewhere. Due diligence is a key contributor to a drawn out, lengthy process. Drafts and redrafts are sent back and forth between lawyers who are hell-bent on negotiating every single detail, no matter how irrelevant.

Your goal should be to keep your team focused on moving forward quickly through the process, addressing any critical issues but not consuming valuable time on negotiations that have little effect on you, the seller.

3 – You’re Not Really Prepared to Sell

While you may believe you’re ready to sell your business, few owners take the time to consider “life after” until their handed a letter of intent or are signing the purchase and sale agreement. Needless to say, addressing the emotional impact of a sale this late in the process is not ideal. We encourage you to take time (before you’re approached by a buyer or explore an eventual sale) to consider the impact this sale will have on your life.

Beyond the emotional preparation needed, there’s some legwork you have to do to prepare for a sale. Namely, how will your key managers be rewarded following this sale? If you wait until the 11th hour, you risk giving your key employees increased leverage, causing them to seek unrealistic compensations or rewards. Having to let go of a key employee (in both the eyes of the seller and buyer) just before the sale, due to insubordination, can easily kill the deal.

Avoid major setbacks by preparing in advance

Facing obstacles and setbacks is a normal part of selling your business. Having a deal completely fall apart doesn’t have to be. By understanding these common deal killers, you can be better prepared to avoid a situation where your buyer loses faith or confidence and walks away.

 

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