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M&A Deal Killers to Avoid

By Generational Equity

10/31/2022

There is an old axiom in deal making that goes something like this:

  • A deal is not a deal until it dies at least twice…

Now this reference really refers to deal killers that can be fixed and deals resurrected, often through the hard work and professionalism of an experienced M&A advisor.

However, over the years we have tracked horror stories, most of them involving inexperienced business owners who either took bad advice from their cousin Larry or because of just plain deal ignorance, that led to issues that made deals impossible to resurrect.

So, in recognition of Halloween and deal-breaking horror stories everywhere, here is a list of deal killers that we have seen over the years by business owners working without an M&A advisor:

Presenting completely unrealistic growth projections – This one is guaranteed to turn most buyers off fast. If your company has been growing at 5% annually for 30 years, claiming a capital infusion will suddenly turn that around to 30% per annum growth is not going to keep buyers around for long!

Documentation that is inadequate or, worse yet, non-existent – Don’t make the assumption that the buyer(s) should just believe you because you have an honest face… Provide historic evidence of your business and realistic pro formas that have proof/research to back them up.

Pitching a deal in non-traditional formats – Professional buyers like to see 1-2 page confidential information summaries that give them reasons to want to see your entire book of documentation. Don’t cold call buyers (usually a list of members of your country club) with an opening line of “have I got a deal for you…”  If you want to attract and deal with professional buyers, be professional yourself.

Using terms that are too vague to be realistic – Avoid words in your confidential profile that are red flags such as best opportunity ever, act now to take advantage of this, unbelievable growth potential (if so much potential, why haven’t you done it), get in on the ground floor, etc. This type of jargon means your profile will most likely be headed to the shred bin.

Using the word “guarantee” – That is a major red flag, as there is no such thing…

Being rude – This is so simple it is ridiculous, but history is filled with buyers who have been turned off by a seller’s arrogance, disrespect, and general unlikability that comes across in face-to-face meetings. Buyers enjoy working with sellers that they like!

Simplistic valuation methodologies – Just because a publicly traded company in your industry is trading at 40x earnings, don’t base your valuation on that and claim, “hey, we are essentially just like them…” Remember there is a reason that they are traded on the public exchanges and you are not.

Being lazy – Far too many deals die just because sellers take too long to get back to buyers when questions are raised. Note, this is another great example of why you need an investment bank working for you: You need to run your company and they need to vet and send questions to you in an organized manner.

Taking questions from buyers personally – Too many business owners walk away in the midst of due diligence because they take a question from a buyer as an insult to their honesty and intelligence. Remember, selling a business is business; questions are not a reflection on you and your skills.

These are just a few of the hit-list deal killers that we have seen over the years. This is by no means comprehensive; it would take volumes to list them all. Suffice it to say, the best way to keep a deal from dying and keep buyers from losing interest in your company is to have an experienced M&A team by your side like Generational.

The reality is the sale of any privately held company to an optimal buyer with an optimal deal structure is pretty miraculous. One of the reasons that our company has been so successful over the years is that we help our clients out by working miracles out for them. Here are a few examples:

To learn more about how our services can help you avoid a deal-killing mistake, one that could negatively impact you, your financial future, and your legacy, plan on attending a Generational Growth and Exit Strategy Conference near you. You can find one close to you here.

And no matter what path you choose on your journey, be sure to avoid the movie “Halloween Deal Killers” in a theater near you!

Carl Doerksen is the Director of Corporate Development at Generational Equity.

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