Buyers & sellers beware of deal fatigue

deal fatigue can ruin the sale of a business

“Time kills deals” is a well-proven axiom in M&A brokerage

By Dave Driscoll

Time is not necessarily a friend when it comes to mergers and acquisitions transactions. When a prospect decides to actively investigate buying a business, all parties and advisors should commit to a deliberate pace to move the process forward. The M&A advisor, prospective buyer, and seller all need to focus on reaching critical decision points that either progress toward a purchase or determine the deal won’t happen.

Buying a business is a time-consuming process even under the best circumstances. When a prospect identifies an interesting opportunity, a non-disclosure (confidentiality) agreement must be signed, and the financial ability to consummate a transaction must be assessed. After clearing those hurdles, a Confidential Business Profile of the business is shared with the prospect.

Assuming the buyer prospect likes what they see, the next step is a conversation with the business broker to answer additional questions and/or to provide more information to assist with the decision to proceed.

If the buyer confirms continued interest, and the broker believes the prospect and seller could realistically reach agreement, the business broker should coordinate an offsite meeting to introduce the seller and prospective buyer. This is an opportunity to engage in a general conversation about the business and gauge chemistry between the buyer and seller.

As you see, quite a bit of time can pass before an introduction with the owner. Reaching that step in a timely manner will not occur if either the broker or seller does not do their part to manage the process, or the buyer prospect approaches the process casually. Even coordinating busy schedules and a location to introduce the seller and buyer can take several weeks.

After the meeting, both the buyer and seller must determine whether they want to proceed toward a sale. Yes, the seller may decide (for a variety of reasons) that they do not want to sell the business to a specific candidate. In most cases, the seller wants to feel confident the business will continue to succeed, provide for their employees, and satisfy their customers. Therefore, a seller will be judging the buyer on their perceived ability to successfully lead the company.

If the parties mutually agree to continue, drafting the Letter of Intent (LOI) is next. The LOI is the formal written record of the business terms and conditions of the deal as discussed between the buyer and seller during the investigation process. The LOI is non-binding but is negotiated to capture “the essence of the deal.” The broker facilitates the LOI negotiations; several drafts typically pass back and forth before all parties reach agreement either to proceed to due diligence or to abandon the deal because of an impasse.

The lengthy process described to this point assumes both the buyer and seller are engaged, motivated, and willing…and can take four to eight weeks. Now imagine if either party is not proactive, or the M&A intermediary is not engaged and diplomatically conveying the urgency of next steps to both sides.

When the LOI is accepted and signed by the buyer and seller, due diligence begins. The length of due diligence is defined in the LOI and generally is 30 to 60 days, plus an allowance for extensions based on certain circumstances. The buyer creates a list of confidential information requested to investigate more intimate details of the business during the due diligence period. Essential ways to expedite the process include the buyer providing the list of requests as soon as due diligence begins, the seller providing complete, well-organized information proactively and/or promptly when requested, arranging tours, etc, and the broker delivering information and managing the requests as a quarterback for the deal.

If the buyer remains committed to the deal, transaction attorneys begin drafting the Asset Purchase Agreement (APA) during the due diligence period. The APA is the legal contract that describes the terms of the sale, including representations and warranties. All terms and conditions to close must be negotiated between buyer and seller (with advice of their attorneys), so there is a real possibility that the due diligence period and APA negotiation combined may take an additional 60 days.

One major condition to closing a deal is determining how the purchase amount will be paid. If the buyer needs bank financing, a “commitment to lend” letter is required during the due diligence period. Once the buyer has secured financing, processing that loan can take 30-60 days, depending on the type of funding. SBA processing frequently takes 60 days.

Once the due diligence period is completed, the APA is fully negotiated, financing is secured, and all the necessary documentation is completed to lend, the closing is scheduled. Typically, closing can occur within a week after all ducks are in a row.

The transaction process from start to closing can take three to four months, or even longer. That’s a long time for the seller, buyer, and broker intermediaries to stay focused and keep the process moving efficiently. Any diversion or distraction along the way can slow down the process and fatigue all the parties.

As a buyer or a seller, you must be aware “time kills deals” and be vigilant about completing each step of the process efficiently. Be realistic and don’t waste time if the transaction is not the right match, but if this deal does meet your goals, focus on the prize!



Dave Driscoll is president of Metro Business Advisors, a mergers & acquisitions, valuation and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at [email protected] or (314) 303-5600.

As seen in Dave’s monthly column in St. Louis Small Business MonthlySt. Louis Small Business Monthly

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