Merger & Acquisition Strategies

Avoid These Four Mid-Market Deal Killers

A failed deal can have far-reaching repercussions. While it might seem to come out of nowhere, deals fail for predictable reasons, many of which are foreseeable from the outset. Understanding these common deal killers can help you take proactive steps to avoid them.

Lost Seller Credibility

All interactions with the buyer should reinforce your credibility. But a number of red flags can quickly erode trust, ultimately killing a deal. Those include:

  • A material miss to financial forecasts. When a seller must report a missed forecast, the buyer wonders what else the seller was wrong about.
  • Excessively positive forecasting. Don’t tell a buyer what you wish were true. Being overly optimistic erodes credibility, particularly when the forecasts don’t come true.
  • Conflicting voices. Team members should not give conflicting information and forecasts. When buyers hear five different things from five different people, alarm bells begin to sound.
  • Presenting a perfect company. No business is perfect. If you present yours as the exception, the buyer will wonder what you’re hiding. And eventually, they’ll find out. Consider talking about areas of improvement as areas of potential synergies between two businesses.
  • Weak presentation. Buyers want to see passion. If they don’t, they wonder why.
  • Slow response times. When owners respond slowly during due diligence, it scares buyers away. Is the seller trying to conceal damaging information? Do they lack access to basic documents? Slow responses are never good.
  • Due diligence surprises. If a major issue materializes for the first time during due diligence, it hints at a seller who can’t be trusted to reveal these issues—or who perhaps didn’t even know about them.

Lost Momentum

Every deal has a hidden expiration date. When the deal drags on, partners lose focus and move to other things. This is especially true when you work with a large buyer who seeks to complete several transactions at once. Due diligence must be quick and efficient. It’s also important to have a skilled M&A team who can prepare you for potential issues and continue moving the deal along.  

Faulty Expectations

Sellers can be naive with their expectations. Some common issues include:

  • Value of the business. First time sellers sometimes have unreasonable expectations about the value of the company. They rely on misleading information and emotional impulses. This is why a proper valuation can be so helpful.
  • Emotional barriers. Selling something you’ve built and nurtured is hard. Some owners have no idea what they’ll do next, and aren’t really prepared to hand over the reins. This tends to kill deals at the very last moment.
  • Not aligning incentives before the sale begins. Rewarding key managers is integral to a successful sale. Otherwise you’ll be negotiating at the last minute, when the people you need the most have the most leverage.

Thorny Tax Issues

Taxes can destroy a deal, particularly when issues that were once hidden come to light during due diligence. This includes state, sales, federal, local, payroll, and other taxes.

Buyers are conservative about tax issues, since they inherit sales tax liability.

Deal killers vary from business to business, and from industry to industry. But knowing what’s most likely to tank your deal can help you keep the deal together.

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