The Secret to a Successful Sale — Expert Tips to Navigate Common Deal Derailers The more you can anticipate potential deal de-railers, the more likely you'll have a successful exit transaction worthy of your time, investment and effort.
- Before going to market, it's essential to ensure that all accounting is accurate.
- Misaligned expectations, especially regarding valuation, can derail a sale.
- Choosing the right sale advisor and an experienced M&A attorney is crucial for a smooth sales process.
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Broken sale processes can be incredibly disappointing for sellers and can create a negative aura around the business. Depending on how widely the deal was marketed, a large number of people may discover the sale process was unsuccessful. Broken and delayed auctions are much more common than people outside the M&A community realize — simple things can derail even large deals. All of this means that preparation can go a long way to ensuring a better sale outcome.
When the numbers just don't add up, buyers lose interest. If there is accounting clean up to be done, do it prior to going to market. Even if you work with a banker or broker, it's not their role to do accounting clean up and they aren't doing an audit while they prepare your marketing package and data room. If any deficiencies are discovered later, they will be attributed to the seller.
If there is accounting clean up to be done, do it prior to going to market. If any deficiencies are discovered later, they will be attributed to the seller.
Remember that the banker wants to do lots of deals and will try to preserve their relationships with the field of buyers, such as large strategic buyers and private equity firms, whereas your deal is probably the only interaction they will have with you as the seller. Of course they want a good seller's reference, but they will also most likely not fall on their sword if your sale process goes sideways.
Another key derailer is misaligned price expectations between the buyer and seller. Many sellers are still clinging to the memory of heady valuations seen prior to interest rate hikes. Buyers don't waste time. There are thousands of businesses available for sale each year. If alignment on price and terms can't be reached, most buyers will quickly move on. In my field of expertise (franchising), this misalignment unfortunately resulted in a number of stalled auctions over the last twelve months. Sellers who delayed closing in the hope of growing into their pro forma and thus getting a better price often found the opposite happened. As inflationary pressure started to hit their franchisees, growth slowed and credit became more expensive and harder to secure, changing both deal mechanics and buyer enthusiasm.
There are rarely "happy" surprises when it comes to business acquisitions. Serial buyers, such as private equity firms, know this and have some degree of tolerance, but only to a point. Accounting irregularities, as mentioned above, impact the business case and introduce risk. The unexpected departure of key management personnel or sudden negative customer trends spook buyers. Unexpected competitor activity could also make a deal less attractive mid-negotiation.
Undisclosed issues, whether they pertain to financials, operations, or franchisee satisfaction, can erode buyer trust and the value a buyer places on the business.
Within the franchise sector, if franchisees provide feedback that contradicts the rosy picture painted by the seller or the marketing package, it could quickly scuttle the deal. This has as much to do with trust and transparency as it does the actual negative feedback. Undisclosed issues, whether they pertain to financials, operations, or franchisee satisfaction, can erode buyer trust and the value a buyer places on the business.
Time as a deal-killer
Sellers with offers on the table in January 2020 who delayed closing found out the hard way — time kills deals. More recently, rising interest rates significantly slowed M&A activity as debt used to fund acquisitions got more expensive.
Other opportunities are out there. Sometimes alternatives may suddenly look more alluring. When buyers are given extra time to research a sector or competitors thanks to a protracted sales process, buyers may find new information that makes the original acquisition target less attractive. Changes in regulatory policies or even the mere whiff of uncertainty in this arena can also cause buyers to rethink their strategies.
Bad sale processes
One of the toughest situations is when a seller simply chooses the wrong sale advisor who drops the ball, doesn't represent the seller well, or otherwise doesn't follow a good sale process. Its also important to select a seasoned M&A attorney who can help get the deal closed. There is a big difference between negotiating important deal terms and arguing over nitpicky details of contract language. Experienced M&A attorneys know the difference and are crucial to getting the deal closed.
If the consultant/banker/advisor/agent doesn't understand the specific business being sold, the marketing materials and supporting data may not be correctly prepared and packaged. Sometimes the data room doesn't contain data cut in the way that buyers active in that particular sector like to see the information. Advance work here with advisors who deeply understand how buyers in your sector behave and what they're looking for is key.
Its also important to select a seasoned M&A attorney who can help get the deal closed.
Of course, if there is poor follow-up, weak attention to detail, or if the advisors themselves have difficult working relationships with either the sellers or buyers, all of these issues can be derailers. Somtimes sellers are not adequately prepared by their advisors for management interviews. This can lead to mistakes. For example, marketing materials (e.g. the Confidential Information Memorandum, known as the "CIM" or "the book") containing information that doesn't match the data later shared in the due diligence process is a derailer that shouldn't happen — but sometimes does.
Too many sellers effectively cede their sale process to their banker/broker. You are the client and must remain engaged in how the process is being run and how you are being represented. Smart preparation is key. It's difficult to claw back sales process momentum if derailers surface. The more you can anticipate and cover off on potential deal de-railers, the more likely you'll have a more successful exit transaction worthy of your time, investment, and effort over the years to build your enterprise.