SELLING A BUSINESS
TOP THREE REASONS A DEAL FAILS
There are many large and small reasons that the sale of a business fails to close. Statistically, about 70% of initially “negotiated” transactions are not consummated. Based upon our experience as an investment bank, we offer the top three reasons for buyers and sellers to crater a deal.
Seller
- Pricing Expectations - Remorse that the process of negotiating the price and terms left the owner(s) with negative feelings. The right investment banker should have reached an agreement on a small range of value and payouts prior to accepting the client engagement.
- Exit Planning – Jumping too quickly into an exit process without complete planning and correcting the deficiencies that will be apparent to any savvy buyer, especially during due diligence.
- Disclosure – Sellers who fail to early disclose problems or potential issues during the process are likely to be rejected by any buyers. And waiting until the drafting of the LOI to disclose hidden liabilities guarantees a failed process.
Buyer
- Financials – Disorganized or inaccurate financials and sellers not knowing or inability to explain operations metrics, such as profit margins, raise red flags to potential buyers.
- Management Depth - Over reliance on an owner without clearly presenting management depth is a tough negative to overcome. This discrepancy devalues the ongoing business entity and reduces the likelihood of a closing.
- Due Diligence – Issues such as customers concentration, lack of a positive culture, few synergies or improved efficiencies, questionable quality of earnings (QofE), and significant required CAPEX (capital expenditures) maybe disqualifiers, individually or collectively disqualifiers.