As the saying goes, “you show me 100 deals and…..I’ll show you 100 deals.” That is, all deals are different, and busted deals die any number of ways. That said, in Gen Cap’s 29 year history, we have created a hall of fame (or most unwanted list) of the most common deals killers.
- Time. When Mick Jagger said that “Time is on my side”, he most certainly wasn’t trying to close a deal. Because when trying to close a deal, time is always working against you. If a deal were a sand bar, time is the water that passes over the sand bar slowly eroding it. The longer it is allowed to run, it will gradually erode the prospects of getting the deal closed. With each day that passes, there are new developments contributing to the understanding of the profitability of the business that will affect parties understanding of value. New opportunities might come to or depart from the market. New buyers may want to enter into the process. And all the while, the buyer’s “meter is running” as it relates to diligence related expenses. So, after too long, parties can begin to suffer from “deal fatigue” and wonder if the likelihood of closing a deal makes it worth the effort. The time can also be costly to the seller, as time spent deal making is time not spent running a company. For this reason, it’s best to try to get to a conclusion as quickly as possible – even if that conclusion is “no deal.” The point: Work quickly. Putting something off doesn’t benefit any parties involved.
- Loss of Trust. Transactions lead to business relationships, and every relationship requires a certain level of trust to be successful. In light of this, it’s important that both parties in a transaction keep in mind that there are an unlimited number of ways for parties on either side of a deal to lose the trust in the other side. Whether it comes in the form of forgetting (intentionally or unintentionally) to mention things relevant to the deal, having mismatching numbers, or changing offer numbers, trust is critical to getting a deal done and easy to lose. So, shoot straight and do what you say you’re going to do. Doing this is what has attributed to much of Gen Cap’s success over the past 28 years. We have found that it’s important that both sides are as comfortable and transparent as possible with the other party, because there will be surprises. That’s life. But those surprises don’t necessarily have to jeopardize a deal.
- Mismanaged Expectations. As with any relationship, each party’s satisfaction with a deal’s trajectory has everything to do with expectations. If a seller is expected to be paid $3 million and is only getting offers for 1 million, there is a disparity in expectation and reality that could threaten a deal. For this reasons, all parties should communicate proactively to help manage expectations. Let the other party know what your concerns are and what your expectations are. While it’s not always comfortable, communicating these thoughts early can be what helps to get a deal over the finish line.
Gen Cap America
Lamar Stanley is a Vice President with Gen Cap America, a lower middle market private equity firm based in Nashville, Tennessee. GCA was founded in 1988 and specializes in acquisitions and recapitalizations of middle market businesses. GCA is actively investing Southvest Fund VII, L.P., a $250 million fund which began making investments in 2016. For more information, please contact Mr. Stanley at (615) 256-0231 or firstname.lastname@example.org.
Look for us at the 2017 M&A Source Spring Conference and Dealmakers Expo, May 8-11 at the Dallas/Addison Marriott Quorum by the Galleria.