Three Ways For A Seller To Tank A Deal
How to avoid these common pitfalls when selling your business
Going through the process of selling your business is neither quick nor easy. Nevertheless, tried and true methods to getting a deal done do exist. I can tell you after more than 20 years in the business that following them will significantly improve the chances of a successful conclusion.
So how does a transaction fail? Owners and their investment bankers can often point to one or more of these three pitfalls:
Getting Too Caught Up In A Sale Price
We all have a “number” in mind that we’d like to receive from the sale of our business. I’m not suggesting that owners compromise on what they need, but I’ve seen situations where a business owner incorrectly believes their value is higher than what the market offers, or they simply want more. They subsequently reject good offers, possibly killing what may be a fair deal as a result. It’s fine to hope for a certain number, but be realistic about what buyers offer and know what you really need.
For the buyer, the opposite may be true. If the business is a good strategic acquisition, they probably can’t pay too much for it. Concurrently, if the company targeted for acquisition is not a good fit, no money in the world can fix it. Focus on determining how acquiring the business adds value to you by expanding your existing geographic presence, product or service offerings, “wallet share” with existing customers and the like. From there, you can calculate a perhaps aggressive, but fair, price for the company.
Overstate Facts During the Deal Process
Inconsistent or incomplete statements during negotiations will, at best, create confusion and, worst case, fuel mistrust between parties. That doesn’t necessarily mean the intent was to mislead a prospective buyer intentionally. Often, it’s more about possessing an excess amount of exuberance than anything else. Don’t embellish things like revenue projections and management capabilities. To that end, take caution not to downplay market risks or competitive threats. Try to convey as realistic a picture as possible. While you may be concerned about the impact on the sale price, being called out later for facts that weren’t entirely truthful will kill a deal faster than just about anything.
Try To Hurry Up The Process
While no one wants to drag discussions out longer than necessary, selling a business takes time. Exactly how much is unique for every engagement. It can vary based on the objectives of the owner and the nature of the transaction. There are several phases involved in every sale process including marketing, negotiation, due diligence and documentation preparation. Adding these together, a full sale process can take from 8 to 12 months, while negotiating and closing a deal with a single buyer can be accomplished more quickly, albeit without the benefits of a competitive market. Let the process go at its natural pace. The outcome will be much better than if you rush it.
About The Author: Tim Malott is a Partner with Shoreline Partners, and has led numerous sale, merger, acquisition and financing assignments across a wide array of industries. A former CPA and bank president, his career spans public accounting and commercial banking as well as investment banking through which he has gained knowledge and experience in nearly every industry and business sector. Mr. Malott can be reached at firstname.lastname@example.org.