There are many moving parts in an M&A transaction. It’s the intermediaries’ task to understand roles and responsibilities and keep all parties moving towards a successful business close. While many things can cause a deal to fall apart, the costliest and most avoidable deal killer is taking too much time.
Assuming you had a professional offering memorandum, negotiated in good faith with multiple buyers and finally agreed to go exclusive with one buyer, it’s now time to pick up the pace. To date, you've likely exhausted ±90 days of an optimal 180-day process so time is of the essence.
Once you've picked your potential buyer, it’s critical that you’re ready to go hard into due diligence and definitive agreement negotiation. Deal fatigue is the curse of slow transactions; it impacts both buyers and sellers.
Where does time affect a transaction?
1. Due Diligence: Due diligence lists are exhaustive and can be daunting to a business owner. Make your seller aware beforehand of items that will be required in due diligence. Give them a sample list of due diligence requests upon executing the listing agreement so they are aware of what will be expected of them. Let them know timing expectations upon receipt of the buyers due diligence list and check in with them regularly to ensure they will hit or beat the deadline.
2. Advisers: When attorneys get involved, they can send documentation back and forth tens of times before finalizing an agreement (i.e. the purchase agreement, employment agreements, etc.). To avoid this, negotiate a detailed LOI so everyone has clear expectations of the terms. Then prior to engaging the attorneys, have a kick-off call so everyone is on the same page and potential rub points are identified and addressed early in the process.
Also, ensure the advisers are going to be available and responsive during the transaction. It’s very frustrating for buyers to wait months for updated financials from a busy accountant or an attorney who is unable to respond to documents for weeks because of their other commitments. Choose advisers who are competent in M&A transactions and have the time to get it done.
3. Deal Fatigue: When a buyer or seller make representations and then change their stance, or move forward on a key point only to renegotiate later, deal fatigue sets in. As a business sale often takes 6-8 months, this stage is common. Parties get tired of negotiating and re-negotiating the same points over and over. To avoid deal fatigue, work with the client to understand key points that they feel are non-negotiable and offer guidance in other areas where negotiating could be beneficial.
Deals take time and effort for all parties involved. With strong, consistent communication and clearly set expectations, a successful transaction can be finalized without succumbing to the ‘too much time’ deal killer.