The worst of times can make the difficult process of selling a business even harder.
Even when economic conditions are favorable, most M&A transactions collapse multiple times before finally closing.
When the economic environment is difficult – extremely difficult – you can count on additional problems and hurdles to getting a deal done.
Even if the transaction is attractive including terms that are advantageous to both parties, both buyers and sellers may be fighting to handle business and personal issues. The last thing on everyone’s mind could be getting the transaction to the finish line.
Delays are inevitable in the best of times. In the worst of times, it’s even worse. Count on more delays.
To paraphrase a famous line from Science Fiction – Fear is the Mind Killer. And uncertainty creates fear.
But there are ways to keep the process moving along. Here are some ideas.
1) Don’t stop talking. Make this a formal procedure, set up specific appointments to keep the communication going.
2) Certain deal/transaction terms in the purchase agreement may be affected. This means earnouts, reps and warranties and other items. Everyone needs to agree on how and to what degree the economic conditions impact the company. The environment is different so that needs to be considered.
3) Know when to push and when to back off. Being too hard driving at the wrong time will hurt the deal. On the other hand, waiting and delay can be a killer to the deal. Know the right balance.
4) If you are the seller – absolutely don’t let up on managing the business well. Don’t let the economic conditions, personal issues, or other problems reflect themselves in the performance of the business. If the business performs poorly during tough times, it will give a giant opening to the buyer to ask for a reduction in price.
5) In the age of pandemics, learn to work remotely. Use videoconferencing, data rooms, and all forms of digital technology that will move this forward.
6) Consider that outsiders not necessarily immediately involved in the company may need to be accommodated. This could include government regulators, banks and lenders, outside CPAs, and so on.
7) Don’t do this alone. Call your M&A specialist regularly. Talk to your financial advisors, and your attorneys and get their advice. They have likely seen bad times before. They know the playbook.
8) If there are any major problems lurking in the business, disclose it early. Don’t try to hide it. This will build trust and prevent the deal from falling through at the last minute.
9) If there is a change in the needs of either the buyer or seller, make sure this is clearly communicated. Needs will change during times of great economic turmoil.
10) Do not surprise key managers, shareholders, or others. Keep them in the know about any changes. And they may be able to offer help and advice to overcome obstacles.
11) If you are a seller, make sure the buyer has the ability and seriousness to complete the transaction. That they have the resources to actually buy your business. In bad times, there are fewer buyers actually able to raise the capital needed to do the deal. Make sure the potential buyer is one of those.
12) Always keep your eye on the ball, and know what your ultimate goal is. Don’t get distracted by what could be a short(er) term situation.
Especially – Be the one that keeps pushing the deal through, identify the obstacles, and work through them. There are reasons the parties started talking in the first place. Remember those reasons and solve the problems that are keeping it from happening.
