Death and Resurrection of Deals

No, this article is not about religion; although for those of us in the business brokerage industry, getting the deal done becomes a religion.  Every brokerage deal I have ever been involved with has at one point in the process effectively died. Fortunately, even though many deals suffer setbacks, they still can and do consummate.  The important concept is that just because a deal has gone sideways, it may still be salvageable. We always continue working on the deal until the coffin is definitely shut.  Why do deals die?  Here are just a couple of reasons with perhaps some anecdotal remedies.

Lender Financing

Financing the deal is always challenging, and securing the financing for the buyer through banking sources is truly the bane of our existence.  Having multiple lending sources available is paramount. Just when it appears that the deal won’t work because of the lending community, another viable source comes to the rescue. For some odd reason, one lender won’t get its arms around a deal while others will; and it happens interchangeably. An important factor to realize is that the banking community in general (and banks individually) go through cycles. One day they are begging for deals, the next they can’t be satisfied with a perfect deal. The key is to just move on once a deal has been rejected.  Getting turned down from one bank is not necessarily indicative of the merits of the deal; submit it to another reputable lender. By the way, the current environment for SBA financing is excellent.

Buyer Financing

I doubt there is anything worse than spending a lot of valuable time with a buyer, including meeting with seller clients and structuring a letter-of-intent, only to find out that the buyer exaggerated his/her ability to financially close the transaction.  When a buyer indicates they have $300,000 in capital to fund a project, rather than taking their word carte blanche, find out specifically where the money is. If their money is liquid and immediately accessible, great. Just because they are in the process of selling some real estate, or they have some money tied up in their 401-k doesn’t mean they are ready to execute on a business acquisition.  They key is to effectively interview the buyer and review his/her financial statement to understand every line item.  I’ve even dealt with buyers who put value on their financial statement attributable to their uncle who said he would help fund a transaction.  I’ve found that buyers, who are counting on family or friends to fund the deal, are likely not real buyers.

Due Diligence

The longer I’m in the brokerage arena, the more detailed questions I ask of the seller before starting an engagement to sell a business.  Having ghosts in the closet, or undisclosed issues on the part of the seller, is a sure fire way to kill a deal.  The remedy is to ask the seller pertinent questions such as: “Are the financials statements accurate in their entirety, or are their income and expense items missing? – the buyer will likely find them if there are”.  Or another good one is: “Is there any outstanding litigation currently against the company, or any anticipated? – we don’t need any surprises before closing (or after for that matter)”.  And of course an important question to understand is: “Tell me specifically why you are selling the business? – is there any other reason why you are selling now?”  Resolving these and other questions will help prevent the deal from dying midstream.  It can be very frustrating to be within a few days of closing on a transaction only to have a due diligence item raise its ugly head.

Understanding why the business is for sell is paramount.  I’ll never forget being within a day of closing and having a seller say, “I’m not going through with the deal; I just can’t part with the business – sorry”.   Know why the seller is selling and what he/she plans on doing post transaction. Sellers who have a concrete idea of what they’ll be doing in a few months are great clients, those who have no idea are suspect.

-Bradley G. Marlor MBA, M&AMI, CBI is a Managing Partner at Utah Business Consultants and a Certified Business Intermediary. Utah Business Consultants is a full-service Business Brokerage and Valuation firm

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