Avoid these common deal killers when you sell your company
Studies related to private company merger and acquisition activity continue to show that the majority of sellers who try to sell their business, aren’t successful in doing so. In fact, various studies show that roughly 80% of private sellers who want to sell, aren’t able to do so.
There are multiple factors why deals don’t get done and here are a few that often surprise sellers to hear:
Seller Valuation Expectations – this is when the seller believes their company is worth much more than a third party believes it’s worth. This is a reason many acquirers don’t like to be the first one to make an offer for a private company, because they will be the first to potentially call the baby ugly and offend the seller with their valuation offer. The seller is unable to then find an acquirer that is willing to pay what they want for it.
Seller Gets Cold Feet – this occurs when a seller begins to negotiate a sale with a third party but through the offer, due diligence and legal document negotiations, the seller realizes they aren’t ready to part ways with their baby. Realities hit them of how their life will change once they sell their company and they realize they aren’t actually ready to separate from their company.
Acquirer Retrade – this occurs when the seller and acquirer agree on an initial valuation and deal structure for acquiring the business but after conducting some or all of their due diligence, the acquirer conveys they plan to change their initial offer, obviously not as favorable as what was first agreed upon. This retrade can offend/upset the seller and end further discussion.
Deal Fatigue – this occurs when either or both parties get tired of the exit process taking too long. This can happen when the seller isn’t able to keep up with the acquirer’s due diligence requests (i.e.: providing requested data or documents) and/or when the seller finds the acquirer not applying enough resources to getting the deal done in a timely fashion and believes it’s taking too long and they tire of the process.
Final Agreement Deal Terms – this occurs when the beef is getting put on the legal contract bones of the deal. The initial offer is generally broad, vague in some areas and non-binding to both parties but it gets both parties to agree at a high level to do a deal. Once due diligence gets underway, both parties begin working on the final legal agreements including the Sale & Purchase Agreement (SPA). This agreement addresses the details of the transaction and it’s during these negotiations of the SPA that the parties find they can’t agree on final deal terms. So, although both parties initially were able to agree on broad deal terms, once the details are negotiated the parties find they are not aligned on specifics and the deal falls apart.
The key here is knowing that all of these common deal killers can be avoided with the right level of exit preparation. Contact us and we can help you think through what steps to be taking today so you avoid ever experiencing these issues when the day comes you want to experience your euphoric exit event.
