Why Deals Fall Apart
A typical merger and acquisition or business brokerage deal will fall apart and get put back together again three times before the deal actually closes. The reason deals fall apart so often is that there are many deal killers that can present themselves and derail everything. On this page, I am going to discuss some of the main reasons that deals fail, so that you, the business owner, can hopefully avoid some of these pitfalls.
One of the main reasons deals fall apart is, surprise surprise, price. An over priced business may still generate business from buyers. They may even make an offer and get as far as due diligence. During due diligence, buyers have the opportunity to do additional investigating, and many times, if they feel the business is overpriced, they will want to re-negotiate the price or change the terms.
Another big reasons why big deals are not successful is the seller is not truly motivated to sell their business. There is a great deal of negotiating when a business is sold. If a business owner is absolutely rigid with their terms and price, many times this will never happen.
As I have noted before in other areas of this website, poor financial records are a reason why many deals either never happen or fall apart. In some cases, a buyer will not have the opportunity to examine a business's books until due diligence. Once in the due diligence period, if the buyer does not feel that the books are satisfactory, or worse, if there are major inconsistencies in the financial records, it may raise red flags for that buyer. As I have noted before, poor financial records increase the perceived risk for the buyer.
Very few business owners are aware of this, but leases and uncooperative landlords are a major reason that businesses fail to sell. If a business has a long-term lease, the lease normally needs to be assigned to the new owner. Many times, landlords will want to change the rent or terms of the lease or in some cases the landlord may have other plans for the building. A dramatic increase in rent or a business without a home, is a bad scenario when it comes to selling a business.
An additional reason that many deals fall apart is surprises. When I say surprises, I mean anything that is not disclosed by either the buyer or the seller during the process. The other parties to the deal usually do not take too kindly to information that is withheld or not brought forth, and may opt to walk away when something pops up late in the process.
When it comes to getting a business sold, time is generally working against the seller. An exceptionally long escrow / due diligence period will generally lead to deals falling apart.
In some cases, the only way to get a business sold is for the seller to carry a note. If a buyer cannot get financing either through the SBA or from other lenders, a seller's note may be required to bridge the gap. In these cases, if a seller is totally opposed to carrying a full or partial note, that deal will die.
Personally, I feel it is very important to discuss and be aware of the potential problems that may happen so that if they do happen we are adequately prepared. My motto is prepare for the worst and expect the best.
If you are a Southern California business owner and you are seriously considering the option of selling your business, work with a professional business broker who can help you navigate this complex transaction.
Contact me today
and I will be happy to work with you to formulate a plan to successfully sell your business.
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