Sarah’s company had been speaking to the prospect for months and was almost ready to sign a letter of intent, when all of a sudden, the seller changed his mind and walked away from the deal. Sarah and her team were stunned and left asking, “What happened?”
Unfortunately, deals do fall apart for a variety of reasons, some of which are beyond your control. One of the main underlying issues is that buyers often do not have a strong understanding of the seller’s perspective. Here we’ve collected six reasons sellers get scared away from acquisitions and how to prevent an ominous ending to your deal.
- Your story is not compelling – Did you do your homework? Understanding the seller’s desires, motivators – both professional and personal – are critical to crafting the right shared vision, especially with not-for-sale companies. If the seller cares about employing family, shutting down the seller’s office in exchange for a fat check may not be the best approach to take. Tailor presentations and really listen to convey your interest in doing an acquisition with this specific company. Spend time investing in your relationship with the seller, after all you may be working together side-by-side once the deal closes.
- The seller wants more money – There are a few ways to tackle the price issue, especially when a seller has unrealistic expectations of value. Walking the seller through a professional valuation report calculated by a neutral third party can help. You may also choose to get creative on deal structure, use earnouts or offer other nonfinancial aspects to bridge the valuation gap. However as a buyer, you will need to make a business decision on whether paying a bit more for a deal is worth it in the long run. You can overpay for the right acquisition and still be successful, but acquiring the wrong company for a cheap price is a mistake.
- The seller wants to keep working – Don’t assume just because Bob is 70 years old he wants to retire to the beach. Many company owners may find it hard to let go of their life’s work so rather allowing this to be a deal breaker, make it a benefit. Find out early on what the seller’s long-term goals are and see if it makes sense to create a position for them at the new company post-closing.
- The seller is overwhelmed – Remember, as an acquirer you can buy many times, but the seller can only sell this company one time. Having a third-party advisor can provide insight into the seller’s fears and help address concerns before the seller gets too scared. You may also help the seller find their own team of professional M&A advisors so they don’t feel overwhelmed.
- You forgot to involve key stakeholders – Never underestimate the influence of the owner’s spouse, partner, or children in an acquisition. Thorough due diligence may help you uncover whether a firm has multiple owners, but determining how involved others are may take more finesse, so make sure to really listen. Don’t discount these other parties throughout the M&A process! For example, when drafting a letter of intent for our clients, we consider the audience very carefully. Should we include the owner’s spouse? Their silent business partners? Find out who the influencers are and consider the complete picture.
- The seller gets cold feet – Sometimes despite your best efforts, the seller just changes their mind. That’s why you need to have a robust pipeline with multiple prospects so you can keep moving forward to a successful acquisition.
Don’t frighten off your acquisition prospects. Consider these six reasons when interacting with owners to increase your chances for a successful acquisition.