If you are anticipating selling your business, it is paramount to work with an experienced M&A team, including an attorney who will protect your interests, act as a proven deal maker, and not a deal breaker. This is also why you want the buyer to outline as many deal terms as possible in the letter of intent (LOI). At the LOI stage, you still have other buyers at the table, giving you more leverage and options.
Avoid These Top 8 Reasons That Cause a Buyer to Walk:
1. External factors:
Some deals are foiled by external factors outside the buyer’s or seller’s control. For example, COVID-19 killed or delayed many deals. The housing bust, 9/11, political shifts, supply shortages, and rising interest rates are just a few events that have stopped deals.
2. The company is not what it seemed:
During due diligence, the buyer may discover that the target company is not what they expected. This could be due to operational issues, poor recordkeeping, inadequate systems, or other concerns. If the buyer believes these problems, make the deal too risky, they may walk away.
3. Financial concerns:
When evaluating an opportunity, buyers assess a company’s financial health and future earnings potential. If, during due diligence, they find significant issues, such as declining revenue, over-aggressive addbacks, or inaccurate financial statements, the buyer may stop the deal.
4. Cultural red flags:
An acquisition involves the integration of people and organizational cultures. Buyers and sellers should have discussed culture before the letter of intent stage. However, sometimes new information reveals itself as the parties work together. If the buyer perceives significant cultural differences, they may walk away to avoid potential integration challenges.
5. Liability concerns:
During due diligence, buyers evaluate a range of risk factors. They don’t want to face unexpected lawsuits or deal with improper corporate conduct, including ethical and legal issues, regulatory requirements, contracts, and tax liabilities.
6. Environmental issues:
Many transactions include an environmental site analysis. Even if you aren’t selling the real estate with the business, buyers may want assurances that the business hasn’t been the source of any unknown leaks or contamination.
7. Strategic shifts:
Sometimes changes in the buyer’s business strategy can prompt them to reconsider an acquisition. Even something as simple as the buyer losing a key executive who championed the deal can sideline an otherwise healthy transaction.
8. Unresolved negotiation issues:
Negotiating an M&A deal requires reaching consensus on a wide range of deal terms, including price, payment terms, contractual obligations, warranties, working capital, and other deal-specific issues. If the buyer and seller cannot resolve key negotiation points, it can lead to deal termination. Unresolved negotiation issues can be a critical point of failure for many deals.
We help our clients while selling their business avoid these 8 common reasons and find the right buyer. Learn more about our proven seller process here.
