Why Do M&A Deals Fall Apart?
Why Do M&A Deals Fall Apart? Completing an M&A deal can be extremely difficult considering the amount of disruptions that can arise. Many of the disruptions that can cause a deal to go southward may be issues that are inevitable, while others may be the result negligence or poor advisory of either party’s team assisting in the transaction.
A few years back Google was exploring an acquisition opportunity to acquire an online news feeder. While Google was preforming the due diligence on the company it found some information in the financials that caused the acquisition team to walk away from the opportunity to acquire the company. While the details behind Google’s abandonment of the transaction is unclear, it is obvious that the company found something it did not like, and that something was a large enough to be a deal breaker.
I have found that when a company is beginning the acquisition process a large amount of information is provided on a generic or estimated basis. While this is expected, it is important that the numbers are relatively close to the actual figures. It is also important that the numbers that are given represent the right accounts as well. For example, if the owners are taking out $500,000 a year in distributions, but they mistakenly say that it is taken out as a salary or wage then $400,000 would be added back into the adjusted earning falsely causing the valuation to be $1.5 – $2.0 million over stated. Once the due diligence is underway and this mistake is discovered the deal could, and depending on the size of the transaction might very well fall apart.
Many times accountants or lawyers are brought in by the selling company to ensure they do not make any mistakes that could come back to haunt them after the transaction is completed. While this is good, it is important to get those that are familiar with the M&A process and those that are not your previous lawyers or accountants (sometimes accountants are okay). The reason I say this is because these third party consultants see the deal as something that will take away their client; if the deal closes they lose that client. While it is not fair to put all under the same profile, many deals have gone south due to the best interests of the lawyers or accountants, not the client. For someone looking to sell a business in Redmond, WA Deal Capital’s professionals have some connections with outstanding lawyers who will work in your best interest to close a deal, not in their own.
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