Buying or selling a business isn’t just about the money. It also affects the futures of employees and their families and the reputations and legacies of the dealmakers.
At LaManna Consulting Group, we advise business owners that the M&A deals that are most successful over the long term start with trust, transparency, and timelines. These are what we consider the Three Pillars of Successful Dealmaking.
Trust the process.
If you have never sold a company before, it’s natural to think that you are in charge of the process. But you’re not. The buyer is.
Unlike real-estate transactions in which you set the asking price and control the timing, the big companies that acquire small-to-midsize companies will expect you to comply with their requests. They have developed systematic procedures for identifying acquisition targets, conducting due diligence, getting objective evaluations, and making fair, realistic, win-win offers.
Unfortunately, sellers often feel overwhelmed by all the requests for information and procedural details. They get frustrated, give up, and delay the inevitable of an eventual end. Or, they stop focusing on leading and growing their businesses. Either way, it hurts the deal. The seller gets a reputation of being difficult to trust and deal with.
Be transparent.
Deals often fall apart because either the seller or the buyer gets greedy. They either aren’t honest about the state of the business for sale or what will happen to the business and its employees after the sale goes through.
If a deal falls apart because the seller misrepresented key facts about the business, the seller can be sued for breaking contractual promises.
Aggravated employees who feel deceived by the process may look for ways to get out and look for better opportunities and a better place to work. Culture is critical because it enables the buyer to envision and execute a successful transition.
Joel Malkoff, author of the book Selling Ethically, believes ethics are smart business. He contends that it is the seller’s obligation to be honest and transparent: “If a seller intentionally fails to make complete disclosure, it is considered deception…The buyer needs to know the truth of which lies in front of him or her before the sale is finalized.”
Respect the timeline.
Buyers invest a lot of time and money to bring a deal to the finish line. They spend thousands of dollars in professional fees during the due diligence process because they can’t afford to make mistakes. Sellers underestimate these upfront costs as well as the regulations governing the integrity of the M&A process.
If a seller fails to deliver key information on time or drops out of the deal midway through, all that time and money goes down the drain.
In the news, you rarely read about all the deals that fall though. But you would be surprised by how many unfinished deals you never hear about because the seller couldn’t commit to making timely decisions or supplying the promised information.
Over the years, we have brought dozens of buyers and sellers together. We understand what buyers are looking for and do our best to educate sellers about what to expect during the process.
M&A transactions can take anywhere from one month to over a year to close. The time required to complete an M&A deal varies based on the size of the transaction and involvement of each company.
To help sellers comply with the timelines without neglecting the daily needs of their businesses, we often recommend trusted, experienced, registered, and licensed advisors who can help them.
Selling or buying a business can be an emotional roller coaster. The best way to survive the ride is to recognize that trust, transparency, and timelines are essential throughout the process.
For more information about the type of advice we give owners who are thinking about selling their businesses, download the free guide: Code Red 12 Seller Mistakes.