In the world of mergers and acquisitions it is fairly commonplace to have deals fall apart. As an M&A firm with several decades of experience, we understand the challenges that deals face and how to prevent them from unraveling. The reasons deals fall apart are varied. We found there are some common themes; but with some pre-planning, they can be avoided.
Here are the top 8 reasons why M&A deals fail:
- Drop in Revenue or Cash Flows During Sales Process – This is the number one reason deals fail. Buyers like companies with growing revenues and profits – the creates a favorable risk profile. A dip in sales can result in the buyer backing away or renegotiating the price and terms. Most often, a drop in revenues can be traced back to the owners focusing too much on the sale of the business and not paying enough attention to the business.
- Surprises during the Due Diligence Process – A surprise can create a lack of trust and confidence between the buyer and seller. It is important to have full transparency between all the parties involved to avoid surprises and deal fatigue later in the diligence process. Our best practice is to guide seller’s on how to prepare for the diligence process before the business is marketed for sale, and to help buyers through a set of diligence tools that foster trust and transparency.
- Missing Important Dates – Time can kill deals. If a seller or a buyer misses an important date to complete a task it can create a lack of trust and confidence in the motivation of either party to get the deal done. To avoid slow response times, set important dates that all parties can agree on and adhere to these dates or modify them as necessary.
- Providing Inaccurate Information – If a seller provides inaccurate or incomplete information it can cause a buyer to become nervous and back out of the deal. A seller should consult with a third party to review all of the business information before it is delivered to the buyer to avoid any complications. An experienced M&A advisor can help the seller prepare accurate company information well in advance of a deal being struck.
- Issues with Buyers – Most diligence issues stem from the seller, however, there will be time that a buyer does not perform. For example, a buyer’s financial stability can decline throughout the time of due diligence, they might lose their lending source, or their advisors might advise against the deal. If a buyer is not showing motivation and sticking to timelines this is a clear sign that something is likely happening and needs to be discussed.
- Outside Market Issues – This is outside of the control of a seller, buyer, or M&A advisor. If the general market is bad, the market for sellers tends to also be bad. If the market is doing well, more companies will be on the market which will cause a lack of buyers. Our advice is to always have your business in the right condition to sell – no matter the state of the current market.
- Advisors are not M&A professionals – It’s not uncommon to have advisors involved in a deal who are not proficient in M&A transactions. It is critically important for both parties to have accountants, attorneys, bankers, and M&A advisors who specialize in transactions. We have seen deals fall apart or get done under less than favorable terms because the buyer or sell did not assemble the proper team of advisors.
- Emotionally Unprepared – Sellers and/or buyers can get cold feet. This can happen at any time but is particularly painful at the closing table. When it is the seller we find that they were not emotionally ready to leave their business. On the buyers side, more often than not a material issue was uncovered or they realize they are just not ready to take on a business. This can be very painful for all other parties involved who put in a lot of time, energy and money. It’s important to catch an emotionally unprepared seller or buyer early on in the process by asking the right questions early on in the process. An experienced M&A advisor should be able to help you navigate the proper questions.
About Sun Acquisitions
Sun Acquisitions is a Chicago based M&A firm that specializes in helping people confidentially buy and sell privately held firms. We have experience working with businesses across all industry sectors and sizes. Each member of our team is a certified business intermediary, equipped with the knowledge and proven method to sell your business successfully.
If you are interested in the sale of your business, contact us at (773) 243-1603 or [email protected] to get the conversation started today.