“The longer it takes to close a deal, the less likely it is to happen; time kills deals.”
– Marisa Pensa
During the “Great Recession,” a lot of merger and acquisition work came to a screeching halt, particularly where small businesses were concerned. In an uncertain business climate, buyers stopped buying, and sellers, fearful that they wouldn’t be able to get a reasonable price for their business, stopped selling. Now, although the flood gates haven’t exactly opened, some entrepreneurs are peeking out of their bunkers looking for acquisition targets. So now may be a good time to offer a few thoughts about merger and acquisition activities. For more on this, whether you’d be a buyer or a seller (now or in the future), please read below.
There are all sorts of aspects to M&A work we could talk about, but for now, we’ll limit ourselves to the proposition that “time kills deals.”
Most M&A deals never close. There are lots of reasons for that:
• The seller is not motivated to sell or gets cold feet. His or her head says selling is the right thing to do, but the heart says, “Nope, this is my baby and I’m not giving it up.”
• The buyer is not motivated to buy or gets cold feet. He or she talks a good game but is in fact just a tire kicker . . . when it comes time to write the check, the buyer decides it’s too risky and backs off.
• Buyer and seller can’t agree on price. The seller has an inflated view of the company’s value, or the buyer is a bottom-feeder who will only buy if it’s a steal.
• Buyer and seller can’t agree on terms. Buyer wants to pay in installments over 20 years, seller wants all cash up front.
• Something turns up during “due diligence” that blows up the deal.
There are many other reasons that deals don’t close, but the fact is, most don’t. So here’s the problem: a blown deal is expensive, not only in dollars (lawyers, accountants, other professional fees), but more importantly, in wasted time and effort. Whether you’re a buyer or seller, once the process starts, your focus, and probably that of your management team, is on “the deal.” Meanwhile, the company is just treading water, and is probably missing opportunities. I know of one seller who danced with a would-be buyer for a full year before the deal was finally declared dead. The seller’s chief regret was that while the dance was going on, the company lost a full year of growth.
So as we’ve said, time kills deals. The longer the negotiation and due diligence stretch out, the more likely the deal is to fail. Obviously, it would be foolish to rush headlong into a deal without taking time to understand all the ramifications of it, and to make sure that it’s fair for you and all your stakeholders. Naturally, big, complex transactions are likely to take more time than smaller, simpler ones. But there’s taking appropriate time, and there’s taking too much time. Too much time is the killer.
There’s probably little to be done to increase the number of deals that actually close. But working with your professional advisors . . .
. . . by the way, you are going to use professional advisers who have extensive M&A experience, right? Not your regular corporate attorney who has no M&A experience or your accountant brother-in-law who does mostly personal taxes, right? OK, just checking. . . .
. . . so you can’t increase the likelihood that your deal will close, but working with your professional advisers, you can develop strategies that will limit your exposure and ferret out dead deals as early in the process as possible. Do everything you can to vet the other side, to make sure they’re legitimate players and that they are as committed as you are to getting a deal done as expeditiously as possible. Sounds obvious, doesn’t it? Yet the deal I mentioned above that took a year before crashing is not an isolated incident. It happens.
Time kills deals, so watch it like a hawk and be intolerant of unnecessary delays.
