When deals fail to close (companies fail to sell), everyone is disappointed. This includes everyone involved in the transaction:- the seller, the buyer, the intermediaries. Everyone.
The issues causing the closing process to stop may be fairly minor or impossible to resolve. If the problem is somewhat minor, it still may be possible to resolve the issue if handled well.
There are hundreds of reasons why a business sale may not reach a successful closing. It may begin with the Letter of Intent which formalizes verbal understandings into a written document. A bunch of items in the LOI can cause trouble. Indemnities, employment contracts, non-compete agreements, reps, and warranties all can cause problems. Every transaction is unique and the personalities of the involved parties can be a factor.
Business intermediaries – your investment banker or business broker – can keep the deal moving along the path to success. They can help resolve difficulties that may arise. That is one of the reasons why you need to have a good one.
Here is a short list of what may go wrong:
Problems with Sellers
- Have unrealistic expectations for the price that the company can be sold for.
- Have second thoughts about selling, the so-called seller’s remorse. This is especially a problem in closely held businesses where the owner has an emotional attachment.
- Are inflexible on selling terms, and require all cash at the closing. This can include unrealistic expectations, especially around reps and warranties.
- Seller refuses to give the intermediaries, advisors, and the process their full attention and consideration.
- Allow the company’s sales and earnings (and other performance measures) to decline during the process.
Problems with Buyers/Acquirers
- Not well-financed or capable of raising the necessary equity and debt to consummate the deal.
- Who are inexperienced but still unwilling to rely on their experienced advisors for advice.
- Lose patience and give up prematurely, maybe due to outside pressures of one sort or another.
- Are not highly focused on their target companies and do not think through the reasons why they want to do the acquisition.
This is just a partial list, obviously, there are many other things that can go wrong. The best way to give your own company the best chance to sell (to acquire a company), is to work with experienced advisors that have your interests at heart. And listen to them. There are never any guarantees, of course, but that approach will give you the best chances.
