Speed, Decisiveness, and Focus Are Critical To Closing a Sale

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By Matt Lazowski,
Vice President

Imagine for a moment you have worked decades to build a successful business, have made the decision to sell your company, have done a fantastic job identifying the right buyer and negotiating the price and other sale terms, have signed a letter of intent (“LOI”) with the selected party and are scheduled to close your transaction in a short 90 days.  “What could possibly go wrong?” you may think to yourself.  The short answer – a lot! The window to sell is always closing and can slam shut in the blink of an eye, especially after the “honeymoon” of reaching an agreement and after the (LOI) is signed.  Our experience closing hundreds of deals reminds us that “time is the enemy of all deals” and to be ever wary of “deal drift” during this period.

Every deal has its own life and momentum. Recognizing the ebb and flow of these characteristics is critical to deal success. Time is the enemy of all deals, and with each passing day, the window to successfully sell your company closes a little further.  There are a number of factors that can contribute to deals failing to close, all of which become a greater risk with each delay in the closing process. 

Common examples that result in a transaction failing to close post-LOI include:

  1. New Opportunities: Buyers who were excited about the opportunity to acquire a business can suddenly become enamored with a new and seemingly “better” opportunity (“the next shiny object”). 
  2. Protracted Due Diligence Process: An inefficient or drawn out due diligence process is one of the most frequent cause of delays.  If a buyer does not have a strong due diligence team and process, or if the seller is not prepared to respond to a buyer’s due diligence requests in a prompt manner, deal momentum is lost in addition to potential “warts” of the company becoming more prominent and discouraging to the buyer.
  3. Material Changes:   There is an ongoing risk of material changes in the business’s operations that can occur during closing. While a number of these changes may be completely out of a business owner’s control (i.e., loss of a major customer, loss of a key supplier, sudden change in interest rates, sudden changes in the seller’s industry that could impact the buyer’s investment, etc.).  Keeping the deal focused and moving towards close as quickly as possible helps minimize the risk of these occurrences happening before close.
  4. Over / Renegotiating the Terms of a DealOver-negotiating and/or renegotiating by the buyer or seller of the terms, conditions, structure, and representations and warranties of a transaction can be a deal killer. At the very least, back-tracking deal components that have been previously agreed upon slows deal momentum, adds time, and causes “deal fatigue.” It also fosters distrust and can call into question all other components of the deal structure previously negotiated. All this can lead to either the buyer or seller second guessing or exiting from the deal. 
  5. Greed & Reaching for the Bottom Dollar: It is completely understandable that sellers who have put everything into their business want to get every dollar they can out of their business. Often, owners lose sight of the original value they desired to achieve from the sale of their Company and their valuation expectations continue to drift higher.  Even after agreeing to a value in an LOI, owners tend to believe their business is worth more and more each day, often without any true fundamental change in operations or profitability to justify this perspective.  It is not uncommon for owners to decide to pass on a deal, believing that the next potential buyer will pay more than the current potential buyer.  Conversely, we have seen good buyers terminate negotiations and the LOI rescinded due to increasing and unrealistic valuation expectations by the seller.   It is not uncommon for a multi-million dollar deal to fall apart in the final days over a few thousand dollars.

While some of the conditions that result in a transaction failing to close described above may be out of a seller’s control, there is one thing that a business owner involved in a sale process can control – their own speed and decisiveness.  Below are some thoughts and best practices post LOI learned through decades’ of shared experience and hundreds of successful transactions completed by EdgePoint’s professionals.

  • Don’t Make Mountains Out of Mole Hills: Work with your advisors to make a clearly defined list of key items to negotiate in a purchase document.  It is a delicate balance between over-negotiating and throwing in the towel on key points, but a seller must do their best to identify what they really care about.  Decide what is really important, and clearly communicate this to the advisor team.  Your investment banker and attorney should collaborate on these items and determine the best negotiating strategy for these critical legal and deal terms.  This avoids any unnecessary delays and miscommunications on the buyers and sellers side. .  
  • Avoid Complacency / Dictate Timelines:  Do not allow yourself to fall into a sense of comfort and complacency once the LOI is signed.  This is when the real work begins.  Sellers must keep in mind that they have not successfully sold their business until signatures on all purchase documents have been exchanged and funds have been transferred.  Until this moment, sellers must respond to all requests from a buyer quickly and push the buyer to adhere to a detailed, agreed upon timeframe.  Don’t be complacent.  Push hard to set up any important technical reviews (quality of earnings), the due diligence meetings, the reference calls, customer calls – any key items that are critical conditions to closing.  Your investment banker is skilled at anticipating where there might be preparation gaps in your due diligence and guide you to be better prepared to avoid any of these delays that might distract buyers. 
  • Stay Focused on the Ultimate GoalRemember what your goals and desires were when you initially made the decision to sell your business and hired an investment banking advisor.  The process of selling a company is an emotional one.  Owners will experience a number of highs and lows during the journey.  Once an LOI has been signed, sellers need to stay focused and continuously remind themselves of their desired outcome at the beginning of the process. 

Focusing on this guidance provides a seller with the best opportunity to speedily and decisively achieve the goals and objectives he or she originally desired at the start of the sale journey.

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EdgePoint is a leading investment banking firm focused on providing lower middle market business owners with merger and acquisition advisory services.

© Copyrighted by EdgePoint. Matt Lazowski can be reached at 216-342-5855 or via email at mlazowski@edgepoint.com.

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