5 Reasons Mid-Market M&A Deals Fail
When a merger or acquisition deal fails to close, we can all agree that it doesn’t feel good. Both the buyer and seller often end up feeling frustrated. That risk is just one reason why it is so important to have experienced professionals at the table. The more deals you have worked on, the better you understand which factors cause a transaction to succeed or fail.
The partners in our firm have been involved in hundreds of successful transactions. Here are some pitfalls to watch out for:
1. Business performance
Buyers will obviously study the financials of a business before they consider buying it. Sellers need to keep in mind that even if their recent history is stellar, buyers will become concerned if current numbers don’t stand up to scrutiny. That is why it is so critical for sellers to plan ahead to ensure that they can still run their business as they go through the M&A process. A business that continues to run smoothly and effectively while its leaders engage in M&A action looks that much more attractive to potential buyers.
2. External surprises
It is very difficult to predict everything that may occur during the course of a multi-month transaction. Whether it is the market crash of 2008, a pandemic, or even a national disaster in your region – large difficult-to-predict events sometimes occur as you are trying to close a deal. The best way to manage this risk is to walk into each stage of the process as prepared as possible and keep things moving. The more often the timeline stalls, the more chance you have of an external factor derailing the process.
3. Internal surprises
When a potential buyer enters into the due diligence process, they will likely have a list of “non-starters” – or discoveries that would cause them to immediately walk away from the deal. As a seller, you do not want to surprise a potential buyer with a non-starter. An experienced M&A advisor can help the seller identify issues in advance, so that they can either be eliminated or dealt with in such a way that they are not surprising.
4. Seller expectations
Business owners like to believe that they know the value of their business. In reality, most struggle to agree on a realistic valuation. This is another area where an experienced advisor can make a huge difference. Managing expectations up front, identifying a range of value that would be acceptable before entering into discussions with a potential buyer, is a great way to mitigate this risk. Have an accurate, realistic valuation goes a long way toward increasing seller confidence and lowering stress. Understanding that valuation in advance also makes it possible to work on increasing it.
As we’ve discussed in other blog posts, emotions play a huge role in M&A transactions. We have seen deals not close because the seller got cold feet at the last minute. We have also seen potential buyers walk away when the process stalls and the delay causes the buyer to lose interest. Upfront preparation can help everyone to feel ready for the journey ahead and can keep the process moving forward at a comfortable pace. Sellers should always take the time to educate themselves on the M&A process and choose partners with proven experience in their industry and region.
Most business owners will only buy or sell a business once or twice in their career. That’s why it is so critical to bring an experienced partner to the table. If you are considering selling your business, please contact us for a confidential discussion of your specific situation. Symmetrical Advisory provides sophisticated merger and acquisition solutions to middle-market companies located throughout the United States. Our services include advising on business sales, growth capital investments, divestitures, strategic acquisitions, leveraged buyouts, and management buyouts.