21 May M&A Deal Closing Speed: Why Some Deals Often Take Longer than Others
There are an innumerable number of detailed nuances that might shift the gears of a deal from overdrive into first. Without going into all possible scenarios, I’ve outlined at least one characteristic from buyers and one from sellers that will give some good insight into how deals can be greatly slowed by the decisions of one side or another.
Buyers Kicking the Tires
A great number of buyers are, for whatever reason, simply out to kick some tires. From my own personal take, tire kickers who’re repeat offenders often either lack the resources to acquire the companies they inspect, don’t have the industry-specific expertise in enough areas to truly add value or feel comfortable with investing in a particular business, or they’re just not ballsy enough to take on the risk associated with an acquisition. In most cases, however, I would equate most tire kickers to very disciplined CPA-types. They know what they’re looking for and know exactly what they’re willing to pay for it–no more, no less.
This no-bull mentality actually helps weed people out. In short, it swings one of two directions. The buyer is either extremely interested and wants to make a deal very fast, or backs out immediately. I personally like this level of no-bull discipline in deal making. For those deals that take much longer than they should, it’s usually not the disciplined folks holding you up. They’re typically in or our very rapidly. Those that hold you up are the ones who know nothing about the business and ask way more questions than would be necessary for a strategic acquirer. It’s like due diligence comes early and all eight potential buyers all want to have it at the same time. It can be a big time suck.
When the Lawyers and/or the Regulators Get Involved
We’ve had a couple of deals that were red-flagged by the state Attorney General in the state where we were doing the deal. One of the acquirers would have created a small monopoly for consumers, allowing them to have full control over product pricing in the region where they were located. As such, the AG jumped in and made specific requirements which included cross-selling of product to other suppliers to ensure the prices wouldn’t be hiked and ultimately hurt the consumer. Luckily the final winning bidder in the deal wasn’t the local competitor and no additional concessions were required of the buyer-seller combo after the deal close. Prior to, however, the AG had dragged out the original terms of the deal for over a year. This him-haw issue caused the deal to go soft and without the right advisor, the company sat in limbo for months–still desiring very much to get the deal closed–but without the legal ability or strict process to push it through.
This just paints a simple example of what can occur and why deals can get bogged-down in the mire of legal issues so very close to the finish line. The catalyst to move things forward is often different and extremely personalized on a per-deal-basis because of the various and differing nuances of each opportunity.
Just a little side-note: it’s best to be very careful with the AG. They make their reputations as protectors of the people and if any business deal appears to provide an AG with an opportunity for advancement by stiff-armed squashing, it’s most likely going to occur. It’s their job and they’ll ultimately do a darn good job at it.
The Cold Feet of Buyers and Sellers
Like any good analogy to a marriage, both buyers and sellers have been known to get skidding, especially right before a deal. It’s interesting to note that it’s not just one or the other either. Just in a snap judgement, I would suspect that sellers are almost as guilty of cold feet syndrome as buyers. It’s tough to sell your baby and getting through the emotions of getting the deal done can slow the process significantly if seller’s aren’t full committed to the process.
I’ve seen deal makers on both the buy and sell side go from, “When can we sign, we’re so excited!” to the next day pulling the plug and wanting nothing to do with the process. There’s a lot of unforeseen emotion in these decisions, rather than straight financial logic. When it comes to out-of-check emotions, the truly sophisticated buyer (and seller for that matter) typically has his/hers much more easily in check than a would-be seller. Sellers are laying out all their cards and selling the family farm in one foul swoop. It’s not easy and the slow speed of transactions, unfortunately reflects the unease at times.
Speed at closing is almost always desired, but as my dad always told me, have a long courtship and a short engagement. If you’ve got the time, spend it. Don’t rush yourself or your potential buyer into a deal that may not be a good fit for either party, but when the stars align, move.
One final caveat. Deals like this are always perceived as slow and can take 12 months and longer. In fact, it’s highly rare that a deal can get done–from start to finish–in less than six months. So, being slow in any event may just be a reflection of a deal-maker’s [insert my name here] impatience with the process 🙂