5 deal killers: It’s never done until it’s done
WRITTEN by: KEV RYAN
There are numerous issues that can strike late in a business transaction, turning a done deal into a dog’s breakfast. But if you know what to look out for and where the solutions lie, there’s no reason your firm’s sale or merger can’t go all the way. Here are five of the biggest deal killers.
Due diligence is over, negotiations are done and a Heads of Agreement (HoA) has been signed. Everybody is happy and the vendor is already making plans for the hefty bundle of cash that will arrive in their account next month.
But now is not the time to be celebrating. There’s still plenty that can go wrong and the deal is not done until the funds have been transferred. That period between agreement and settlement is filled with traps. I call them the “five big deal killers”. Each one can bring the deal undone.
The good news is that they can all be managed, as long as you know how.
Let’s tackle them one by one.
1) Lack of speed = deal fatigue
When deals drag on for too long, they have a far greater chance of collapsing. If there are endless rounds of questions and corrections, lawyers taking weeks to draft documents, negotiations over every clause, months can pass by without anybody realising.
Suddenly, both businesses are in a different place to where they were, people are tired and it simply seems easier to let it all go.
I call this “deal fatigue”, and it’s very real. Essentially, it’s when the deal slows down and drags on for long enough for just one of the parties, even for a single individual, to lose interest or for whom the process takes a toll. Vendors decide it’s easier to simply keep the business, or buyers start looking for fresh opportunities.
Solution: My role during this final run to the finish line is to keep discipline and urgency by ensuring everybody remains focussed on deadlines and every task is ticked off quickly. We nip due diligence in the bud as it’s already done, and we stand form on “no more questions or answers”. Contracts must be turned around fast to ensure fatigue doesn’t have an opportunity to creep in.
2) The wrong lawyer
I have worked with a lot of great lawyers. But I can say without any hesitation that the wrong lawyer will kill a deal.
The negotiation is done and terms are agreed and laid out in the HoA. All that’s needed is the drafting of contracts to mirror those terms.
If the lawyer has no mergers and acquisitions experience and therefore doesn’t know what they don’t know, or if they have too much experience and want to show off how smart they are, they can destroy the deal.
Solution: Don’t just choose any lawyer. These days, I insist that my clients use a lawyer that I trust with this type of work. That’s how important it is – without agreement to go with the lawyer of my choosing, you can’t be a client of my shop. Winning is about executing the deal everybody has already agreed to, not about entering into further negotiations.
3) Staff in the vendor’s business
Staff members can be just as attractive as client lists when it comes to the buyer being keen to do a deal. At the same time, team members can also kill that deal if their expectations aren’t managed carefully.
Disclosure to team members has to happen once you reach the contract phase. Buyers will want to meet key staff, and staff will likely have to sign new employment contracts. So, what happens when people who’ve been doing their jobs faithfully for years suddenly find out the business is being sold?
I’ve seen mutinies, where a staff member walks out, opens up shop down the road and takes a pile of clients with them. I’ve also heard of buyers pulling out because they realise a key member of staff is going to be too troublesome, too much of a handful.
Actually, the fact that most employees want stability works in your favour. People need their salary. They have mortgage payments and school fees, etc. But it’s vital for the vendor to realise that between disclosure and settlement, a good amount of power lies with the staff. That must be planned for.
Solution: Reassure staff that their jobs are safe and they’re valued by the new owners. I often guide vendors on messaging and timing, so the buyer gets what they need without problems being allowed to develop.
4) Cracks in consensus
With deal fatigue and final questions being asked, a key person in the deal who perhaps questioned it all along can develop a louder voice, giving everyone the wobbles.
As I always say, deals aren’t about numbers. They’re about people. The commercial logic might stack up perfectly but personalities and emotions still hold greater power. When one person’s willingness or confidence fades, consensus can quickly be lost.
Solution: My role is often to constantly remind people of why they wanted the deal in the first place. I address concerns before they become objections and keep the focus on the desired outcome.
5) Finance failure
Banks are cautious, slow and increasingly demanding. We’d hope that at this stage finance will be squared away, and most of the time we can make sure it is. But some financial entities won’t give final approval until they’ve seen the signed contract.
I’ve also seen signed deals stall because the bank is taking months to work through the conditions. It’s a fragile time.
Solution: In selecting buyers, I filter them from the beginning to ensure they’ve got the best possible chance of being financed. Often I’ll meet their banker to feel them out. The buyer isn’t the only one doing due diligence throughout the deal…
A final piece of advice
It’s an obvious thing for me to say, but my final warning would be to make sure you have the right advisor on board.
When most vendors don’t know the risks, having somebody by your side who can keep an eye on things from the start will not just maximise the sale price and offer greater confidence to the buyer, but will also give the deal the very best chance of making it to completion.
An experienced advisor keeps the deal moving, calms nerves, manages egos, vets buyers and handles disclosures to make sure this very human process comes to a positive conclusion.
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