Top 3 Deal Killers

The mergers and acquisition market is on fire. And I mean white fire – hotter than it has ever been. We have, what I call, a perfect storm in deal conditions. We, in the Northeast, would call it a solid Nor’easter, but in a good way.

There is an enormous amount of capital available. Financial buyers, for example Private Equity Groups (PEGS), have raised historic levels of moolah and our strategic corporate buyers got a swanky tax cut last year that left billions of dollars on their balance sheets. Then to top it all off, we have artificially low interest rates.

How will these investors get a return on the glut of capital available in this low interest rate environment?

Invest in businesses.

This engineered economy that we currently have with artificially low cost of credit and a plethora of capital has driven this market to all-time highs.

Great conditions for those wise business owners who understand that now is the time to unlock their wealth and execute a liquidity event by selling their business. We are seeing unprecedented premiums on sales.

The challenge is to get the deal done!

Don’t kill your deal by falling prey to these top 3 traps:

  1. UNREALISTIC SELLER EXPECTATIONS

Greed: The human condition that drives us to want more. In caveman times greed motivated us to ensure our human survival. More food, more safety, more fire.

In selling a business, greed will ensure your deal will die. Sellers often have lofty expectations of the value of their business. I get it. For many business owners you have nurtured and grown this baby for many years, sometimes decades. It’s emotional.

Don’t think that if you keep moving your bar higher and higher that a buyer won’t sniff out your greed. Beating your chest to pronounce your greatness and wanting more can back fire and blow up your deal. Buyers can afford to be choosy. It’s not about the money, except it’s always about the money! Don’t let your greed burn the deal.

  1. TIME

The longer it takes to close a deal the higher the risk the deal will die.

A seller may feel that they have all the time in the world: capital won’t dry up, the economy and current high-level buyer activity will continue on forever, just as it is today. What is the hurry?

A domestic or global economic or geopolitical disruption can shift capital availability and buyer activity in a heartbeat, costing an exiting business owner massive lost wealth. Understanding the mergers & acquisition cycle is critical in timing the sale of your company.

And, once you are engaged with a buyer every response must be expeditious. There can be no delays in responding to buyer questions. Also, buyers are not keen on big surprises during due diligence. As part of a client’s evaluation, Legacy Partners performs a pre-due diligence check to ensure that when it is closing time questions and concerns are quickly responded to and due diligence is smooth sailing.

Don’t delay selling your business when the time is right and be timely in responding to buyer’s inquiries as you go through the process. Go to market and close your deal quickly.

  1. ATTORNEY & CPA MISINFORMATION.

There is a tendency for these top advisors to impede a business owner’s progress towards an exit. Why don’t they want you to sell your company?

Let’s take a wild stab at this – perhaps they really like the billings they earn with you as their client. A buyer of your company most likely has their own professionals, so the opportunity for your CPA or attorney to gain a client post-sale of your business is just about zero.

On another point, your CPA and attorney are, most likely, not mergers & acquisitions specialists. Don’t let your CPA or attorney delay your going to market when the timing is right.

Are these advisors important in your deal?

Yes!

Your CPA is critical to helping us successfully complete your deal. The accuracy of the financial information provided to a buyer is enormously important. Your CPA will guide you in creating a quality of earnings report so that all add backs are verifiable, which will drive your price up. When you receive your offers in the form of a letter of intent we need those offers unpacked so that we understand the tax impact. You have given enough money to “Uncle Sam,” that silent partner all these years, and your CPA will help us mitigate the taxes owed when your deal closes.

You will need an M&A attorney as well. If your attorney has helped you with litigation, closing real estate deals, or collecting accounts receivable, that is not your guy!

A seller needs an experienced M&A attorney with deal making experience within the size and complexity of their deal. The attorney works with the deal team in propelling your deal to close. Along the way, they will collaborate with your financial advisors to structure the deal to mitigate taxes and any risks post-close of your deal. Choose wisely.

And there are a slew of other deal killers:

  • External market conditions soften
  • Seller industry disruption
  • Stakeholder disputes
  • Seller becomes emotional and can’t let go of the business
  • Death of a partner
  • Natural disaster

When the mergers & acquisition market is on fire, run to it. Enjoy the liquidity event and then leave a lasting legacy by preserving your wealth for the next generation.