Failed business deals come with the territory of buying and selling businesses. When it comes to mergers and acquisitions, there are many factors at play that can result in a failed sale. Even top buyers can be dissuaded by bad timing, poor internal management, or a host of other reasons.
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The top buyer paradox
Nash Advisory undertake many successful transactions each year. In completing those transactions, we have likely spoken or communicated to over 500 potential buyers. Some buyers are local to the city of the business, some are national companies, while others may be from countries around the world.
When we start a transaction we undertake a market map and rank the likely buyers after consulting with our client. Often we are surprised to find that the ultimate buyer was not in the top group of likely buyers. In our experience, these top buyers have missed out on a great opportunity which could add significant value to their business through synergies and scale.
This paradox is unavoidable, as it's impossible to know the full story of a potential buyer. It may be case of poor management, lack of resources, or something as simple as bad timing. Whatever the reason, Nash Advisory is committed to finding the right buyer, whatever it takes.
Why potential buyers don't commit
Here are some of the most common reasons why buyers in the top echelon may wish to bow out of a sale, even though they may benefit greatly from an acquisition.
More often than not, the simplest explanation for a failing sale will be bad timing. Sellers must remember that potential buyers are often engaged with other prospects, as well as having their own businesses to run. Mergers and acquisitions signal a huge shift in a business, and the timing may not be right for a sale.
When it comes to selling a business, timing issues may mean that your prospective buyer is:
- Busy with another transaction
- Undergoing a strategic review and needs to fix something internally before looking to acquire other businesses
- Unable to present the funds to undertake acquisitions at the moment
- Made up of a new management or board. If these entities are new to the business, they may not want to risk their early reputation on an acquisition
Holiday periods can also significantly affect the result of a transaction. Easter, Christmas, and Chinese New Year can affect the ability of a buyer to review opportunities and move with steady pace.
Poor internal management
Unfortunately, some prospective buyers just aren't ready to commit to a sale. This has nothing to do with timing, but rather the experiences they've had in the past. Past and present managerial situations can create unease and mistrust for prospective buyers.
Here are some reasons why poor management may affect the outcome of a sale:
- Buyer has undertaken transactions in the past and they have gone poorly
- Buyer fails to engage an advisor to assist them with the transaction
- Buyer lacks the internal resources to adequately assess and integrate a transaction
When it comes to approaching the ideal buyer, sometimes things go wrong in unexpected ways. Mergers and acquisitions are complicated decisions that have a lasting impact on the future of both businesses. It's understandable that such decisions can be impacted by elements outside of either party's control.
Here are some other issues that may result in a failed sale:
- When owners have the attitude of “our company is better than the target”, egos get in the way of a deal.
- Management and Board can may be adverse to taking risks, and will want to tread carefully to protect their employment.
Read more: Top 10 reasons why businesses fail to sell.
Selling with Nash Advisory
In our experience, a business sale is a 6 to 12 month process. At Nash Advisory, we prefer to communicate with buyers early in the timeline and educate them slowly.
To begin, we undertake introductory calls and tell buyers to expect an interesting opportunity to be presented to them in the next 1-2 months. Then, we follow these steps to get the best result:
- We walk buyers through the sales process from our end.
- Our first goal is to get a written offer from buyers in-hand before we progress with anything else.
- Next, we progress them through due diligence which can take between 4 and 12 weeks.
- Finally, we complete the deal via legal documentation.