Frequent Deal-Making Mistakes
Selling businesses and doing deals is often a long and arduous process. Preparation and anticipating potential fires in the deal process is essential for deal-making success. Here are a few speed bumps to consider on the road to getting the deal done in a timely efficient manner.
- Doing deals is a complex machine with hundreds and even thousands of cogs.
- Starting a deal just because it’s a deal and beginning with no other reason than that.
- Failing to have a strategy for the inevitable hiccups. The biggest problem is lack of anticipation of things that could go wrong. If you anticipate, you can at least not be surprised when the best plans of mice and men go awry.
- Beginning deal talks without fully understanding (or wanting to understand) the other party’s motivation for buying or selling.
- Asking for too little or taking too much cash off the table. This may be prudent given that you may be attempting to buy low and sell high, but don’t be surprised if feet-dragging takes place on the part of the seller later as they’re not going to be as motivated and may have very negative feelings toward you as the buyer.
- Taking your eye off the ball. Some will move to deal 2 before deal 1 has closed. This can cause you to lose both deals. Stay focused. Stay disciplined.
- Failing to mitigate risk. Many risks are involved in deal-making if you fail to predict or control for them, you can eventually loose your shirt. Example: working 9 months on a deal that blows up with nothing in the pipeline with create an even bigger explosion with your investors.
- You may fail to fully incentivize, motivate and all-together “fire-up” the other side of the table. When they’re motivated, deals go down.
- Failing to calculate or fully articulate the expected return on investment from the deal in your own mind and in the mind of your investors.
- Failing to fully anticipate how both parties will work together to resolve ALL of the challenges of working through the deal process. In some cases, this means failing to walk away from a deal.
In short, don’t jump in right away. You’ll fully need to do all your homework before beginning the deal process. If not, the deal itself will end up lasting much longer than originally anticipated which increases the likelihood of things souring. While this is less likely when you have a motivated baby boomer selling his/her business, it can still be problematic as it creates unnecessary drama. When this happens, the rabbits get scared. In other words, the targets flee the scene and you end up with a lose-lose scenario.
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this Broker-Dealer and its registered investment professionals on FINRA's BrokerCheck.
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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC, a middle-marketing M&A and capital advisory firm. Nate works with corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He holds Series 79, 82 & 63 FINRA licenses and has facilitated numerous successful engagements across various verticals. Four Points Capital Partners, LLC a member of FINRA and SIPC. Nate resides in Seattle, Washington. Check the background of this investment professional on FINRA's BrokerCheck.