If you've ever entered into a merger or acquisition negotiation, you know that what once seemed to be a straightforward transaction can quickly go sideways. There are a variety of reasons that these deals fall apart, many of which might seem like the kinda thing that only happens in the movies. However, there are a few that we regularly see. As such, today we'll discuss the top three reasons acquisition deals fall through.
#3 Reason Acquisition Deals Fall Through - Relationships
While it is not necessary that the buyer and seller have a relationship, the attitudes surrounding those relationships can impact the transaction. For example, let's look at an acquisition in which the buyer and seller have a professional relationship vs. a personal relationship.
Finalizing the sale of a business takes a considerable amount of time, no matter how big or small the business. In fact, as the seller, you may feel as though you're putting in more hours preparing your business for sale than you did running the business. As such, it can be quite easy to develop a negative attitude towards the buyer.
However, if you want the sale of your business to go through, it's important that the buyer maintain a professional relationship with the seller. Separate your personal feelings from the transaction. Take your ego (and all the blood, sweat, and tears you poured into that business) out of it.
Remind yourself that this is simply the nature of mergers and acquisitions. Boxes must be checked. Due diligence must be done. Leases must be negotiated. Books must be reviewed. It's all part of the deal and you shouldn't take it personally.
That said, one of the most common situations we run into with our clients is when a valuation of the business is completed, and it doesn't measure up to the seller's perception of worth. If you really want the deal to go through, it's important to be honest about the market conditions and how that might affect the deal. Acquisition deals fall through when the seller's perception of their business' worth doesn't align with the market.
All that said, if you're like many of our clients, selling your business is incredibly personal. Your business has been your baby for years and you want it to go to someone who will care as much for it as you have. You may even hope that your business goes to someone you know personally.
Even if the buyer and seller don't initially have a personal relationship, developing one can strengthen the sale. For example, one of our sellers was getting quite anxious about some of the delays that were occurring during a standard due diligence period. We decided that rather than let the acquisition fall through, that we would encourage the buyer and seller to spend some time together. Not only did this time together make both parties feel a little more comfortable about the sale, but the buyer also was able to better understand the ins and outs of the business from the seller's perspective. Both parties were much happier throughout the remainder of the process, negotiations ran smoothly, and the business continued to thrive beyond the sale.
#2 Reason Acquisition Deals Fall Through - Failing to Disclose
The second reason that acquisition deals fall through is a failure to disclose extremely important details that could negatively impact the sale.
Our team of business attorneys has seen it all, so we completely understand that things often come up before and during traction. In particular, sellers regularly face personal issues that directly impact their ability to sell their business. For example, the seller's business partner has been completely absent for years but decides to pop back into the picture right in the middle of acquisition negotiations. Or, the seller is going through a divorce and the seller's spouse is unwilling to cooperate.
Whatever the case may be, your business attorney is well trained to handle just about anything as long as we know that a situation exists. It's better to overshare with your lawyer than to hide information. In the long run, failing to disclose is one of the top reasons acquisition deals fall through.
#1 Reason Acquisition Deals Fall Through - Neglecting the Business
Finally, the number 1 reason that acquisition deals fall through is that the seller neglects the business in the process of preparing the sale. As we discussed in reason #3, the acquisition process takes a considerable amount of time, especially if you don't have your (financial) books in order.
We typically advise our clients to do their homework first before starting to entertain buyers. This includes cleaning up your financial data, making sure tax information is up-to-date, etc, so that when a seller does get involved, that you can still effectively manage the business.
While you may have mentally checked out of the business (thus, the reason you're selling), neglecting the business could mean a lower sale price. Therefore, keep an eye on the deal and your business. The process may seem painful, but a good attitude goes a long way towards a successful end.
Contact our Eldreth Law at any point if you have questions regarding small business acquisitions, incorporation, partnership agreements, forming a business, or other legal inquiries. We want to make sure your acquisition deals get to the finish line, not fall apart.