When Acquisitions Fail | O'Keeffe & O'Malley | Failed Acquisitions

When Acquisitions Fail

Oct 01, 2021

At O&O, our record of closing deals is over 90%, but over the years, we’ve seen our share of failed acquisitions. Nothing is more disappointing to everyone involved than spending months trying to sell a business and having the deal fall apart. When a deal falls through, it’s because of either the buyer, the seller, or the business itself. Here we’ll review some of the common pitfalls and what you can do to avoid them.

Your M&A advisor can help you avoid these pitfalls by helping you take a hard look at your business to determine if you’re ready to sell. If your house isn’t completely in order, your advisor will provide a plan for how to get there. Selling your business is too important to leave to chance. Let us make sure you’re ready to sell and help execute a smooth transition to your next chapter.

The Buyer

  • Of course, a buyer can always get cold feet and back out, but tne common failure among buyers is the inability to obtain adequate financing to do the deal. Your M&A advisor can help by pre-qualifying buyers early on to minimize this risk.
  • Deals can also fall apart if there are unpleasant surprises during due diligence. We help both the buyer and seller get the information they need to keep moving things forward and avoid the delays that can kill a deal.

The Seller

  • Unrealistic valuation expectations – Determining the true market value of a business can be an emotional rollercoaster. All sellers want to get as much as they can when they sell their business, but it’s important to have a good understanding of what the business is truly worth. Your M&A advisor can provide an unbiased opinion of value or provide a roadmap to prepare the business to achieve a targeted value.
  • Lack of preparation – Books must be in order with accurate financials and a strong management team must be in place prior to going to market. Your advisor can identify potential issues, analyze the situation and fully prepare your business for the sale process.
  • Material changes, such as an economic downturn or major change in the industry can stop a deal in its tracks. Putting off critical decisions or ignoring day-to-day operations can cause a business to suffer and a deal to fall through. Buyers don’t want to get involved with a struggling business, so operate at peak efficiency and continue to run the business as though you were not selling.
  • Failure to disclose any not-so-perfect aspects of a business will ultimately surface during due diligence, so it’s best to disclose any issues up front. Your M&A advisor can help you prepare and present accurate disclosures that will not only demonstrate your thorough knowledge of the business and industry but also build a trusting relationship between the buyer and seller.
  • Focusing only on money can be short-sighted, because often the highest sale price doesn’t indicate the best deal. The highest price may come with strings attached; whereas, a lower price may provide more up-front cash, better employee agreements for management or fewer contingencies. Your advisor will help you evaluate offers so you can keep things in perspective and focus on the big picture.
  • Times of inaction are a normal part of the sales process, but long delays or lengthy standstills can cause a deal to falter. The longer things drag out, the more likely either the buyer or the seller will lose interest and move on. Work with your advisor to determine a reasonable time frame for due diligence and rely on them to keep the deal moving forward.

The Business Itself

  • A lack of documentation may portray a poorly run business. Written records of business processes, production information, inventory controls and other procedures are a must. Vague or incomplete regulatory or financial reporting will only cause alarm for a prospective buyer.
  • Litigation or outstanding taxes can make buyers uneasy, especially if they can materially impact the business. Resolve any issues before going to market with your business.
  • Earnings fluctuations can be a game-changer for buyers because valuation and lending can become much more complex. Accurate reporting will result in accurate projections that won’t come as unpleasant surprises in due diligence.
  • To make sure employees can’t hold the owner hostage obtain executed non-compete, non-solicitation and confidentiality agreements from employees prior to a sale.
  • A large concentration with one customer can impact value and kill a deal if the buyer fears the risk of that customer leaving, so work to diversify your customer base.

An experienced M&A advisor can guide you through the process and represent your best interests. The chances of your deal closing increase with the professional guidance from someone who is experienced in business sales transactions. For information about how avoid the pitfalls that can stall selling, call us at 913.648.0185 or email michael@ok-om.com.