Details as a Cause of Deals Falling Apart
At one time or another, the sale of a business falls apart and when it happens, it naturally leaves both parties bitterly disappointed. Sometimes, the reasons are too big to overcome, and other times they are merely microscopic (yet very powerful). On average, professional intermediaries, such as business brokerages, are able to close the deal between a seller and buyer in eight out of ten instances. This number can be lower or higher, depending on the particular intermediary. However, what all the intermediaries with a higher closing rate have in common is that they work on selling the company for three years. And for a good reason – the longer selling period will help them avoid any pitfalls originating from minute details.
Usually, the first step in reaching an agreement between the buyer and seller is agreeing on price and basic terms (this occurs well before anything is put on paper). Only then both parties advance to other important issues. However, it is often in this phase when deals may fall apart due to disagreement on those minuscule details, such as employment contracts, non-compete agreements or it can be caused even by personality conflicts.
Years of experience in the industry contributed to creating a list of possible deal-killers that often plague buyers and sellers alike:
- Buyers prematurely give up on the acquisition due to losing patience (usually within one year or less)
- Buyers lose focus due to not being focused enough and having real reasons for doing the deal
- Buyers haven’t secured sufficient finances or access to necessary equity or debt to the deal
- Inexperienced buyers protect their ego by not leaning heavily on the advice from their experience advisers
- Sellers have unrealistic expectation for the sale price
- Sellers get second thoughts about selling
- Sellers insist on all cash closing and/or are inflexible with other terms of the deal
- Sellers neglect the support of professional intermediaries and don’t give them their full attention
- Sellers let their company slide during the sale process
The above list provides a brief insight into the sea of many problems that can weigh down the sale. By considering details like these, many future problems can be simply prevented in advance. However, if the deal doesn’t look like it is going to work, it probably isn’t. It may be time to move on.