Avoiding costly M&A delays and deal failure
No matter how motivated the buyer and seller, selling a business is always a challenge. There’s a lot that can go wrong, and deals can fall through at any time.
Delays are one of the biggest problems contributing to deal failure. The longer the process drags on, the more likely it is that a) someone gets fed up and moves on or b) something big will happen, economically or geopolitically, that disrupts the deal.
Here are three top delays that can be readily avoided when selling your business:
Messy financials.
Disorganized or simply non-standardized financials can cause significant slowdowns. If your bookkeeping doesn’t align with accepted practices, buyers will spend considerable time and money verifying your numbers.
Buyers don’t like making that investment only to find out your EBITDA is 20% less than stated. At this point, they generally expect to “retrade” the deal, adjusting their price or terms. This can lead to contentious negotiations or complete deal failure.
In the three years before a sale, it’s best to have your financial statements audited by your CPA firm. If you haven’t done that, you can have a Quality of Earnings report completed by a reputable third-party firm, separate from your standard CPA. Either approach will give buyers confidence, create transparency in your numbers, and allow the process to move ahead faster.
Surprise discoveries.
When selling your business, we say “go ugly early.” If you have skeletons in your closet, a customer that’s threatening to walk, ineligible workers on payroll… we need to disclose that to buyers sooner rather than later.
When surprise conditions are revealed too late in negotiations, it makes buyers wonder, “What else are they hiding?” Unexpected revelations can trigger additional due diligence, causing buyers to view your business as a source of risk and suspicion.
Inexperienced deal teams.
When it’s time to sell your business, you want a proven deal team in your corner – including an investment banker, a tax specialist, and an M&A attorney. Your regular CPA and attorney have their own roles to play, but you also need M&A specialists who understand what’s standard and customary in deal terms.
Inexperienced advisors tend to be both slow and overzealous. They work overtime to figure out what they don’t already know, and they tend to ask for unreasonable concessions which slow down negotiations.
Experienced M&A advisors can keep the process moving forward at an appropriate pace and minimize the impact of any complicating factors that arise. The old adage of “time kills all deals” holds true in M&A. The longer it takes to get to that closing table, the more expensive and tenuous the deal gets.
For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.com. Exit Strategies Group is a partner in the Cornerstone International Alliance.
