We’ve discussed “Deal Fatigue” earlier and explained how it accumulates over the courses of an M&A process as a result of the complexity of these transactions.
Time is passing by, what do we have to show for it?
Time flies when you’re having fun and a minute feels like eternity when you’re not. In business like in our personal lives, we’d rather do something we like over a repetitive, never ending task. Frequently, there comes a time in an M&A process when people start seeing the months of negotiation back and forth as a waste of time rather than progress. At that point, second thoughts slowly sink in and decision makers on either side of the table may start to question the overall value of the transaction.
As an intermediary in these kind of transactions, I have seen too often this phenomenon occur as the original time frame expands. Each month that goes by without having resolved the outstanding issues just makes the prospect of closing a transaction seem further away, unattainable. Failure to address the issues at hand will just make its stakeholders lose focus and move on to other things. So, what can we do about it?
Over the course of the process involving the sale of a company, many entrepreneurs and owners of family-owned businesses will go from an initial denial to a tacit acceptance. By the final stages of contract negotiation, often times, Sellers are now picturing their life post-transaction. So when the negotiations start hitting a wall, the disappointment just gets even bigger as their dreams start shattering with the prospect of a deal not closing. On the Buy-side, the same effect happens too. a Buyer, oftentimes, will project himself as the new owner of the company as the deal advances. “You” slowly becomes “We” in the discussions about how the company is run. The main terms of the deal agreed upon, we’ll start focusing on smaller aspects and start planning the integration of the company post-acquisition.
So, how do we prevent and/or overcome this phenomenon in a deal?
Planning the process and setting clear objectives is a key first step to a fluid process. If all parties step into this complex process with a clear understanding of the steps involved, reasonable time frame to be expected, and its key milestones, then everyone’s can keep their eye in the metaphoric ball.
On the Seller’s side, this includes assessing early on the quality and availability of your information to provide reasonable estimates to the counterpart. Failure to do so will result in unnecessary stress as the Buyer, operating under the assumption that you’ll be sharing the info requested faster than feasible, will most likely be asking for updates and for the pending information before it’s ready. From a Buyer’s perspective, if a Seller has estimated 2 weeks to prepare the information but 8 weeks have gone by and still nothing has been shared, questions start to pop up… Why is it taking so long? Is there a problem? Did they change their mind? Are they hiding something?
This last question can be problematic as the person thinking ‘they are hiding something’ will generally look twice as hard to find issues even if there are none to be found.
Wherever possible, use tools to help monitor progress
As the process advances, questions and issues will be raised. It is important to keep track of these issues for various reasons. First of all, setting up an “issue tracker” helps categorize and prioritize those points to be addressed. Listing all points in a tracker allows also all parties involved to see progress. In cases where lots of questions or issues come up, I like to add at the beginning a summary table breaking down all items in groups, such as Open / Partially Answered / Closed with a percentage next to it. This way, as items get closed, the progress is evident and morale gets boosted a bit.
The other advantage of combining questions into a single document (be it per area or as a whole), is that previously asked questions can be rapidly closed by referring to the answer previously given. Due diligence processes often times involve teams of reviewers divided across multiple areas of expertise. Unlike in a party where the more the merrier, in M&A processes, the more people get involved, the more a question gets asked more than once.
Another important tool is coordinating periodic meetings, both internal and between Buyers and Sellers. The frequency of those meetings will vary based on the stages of the transaction and the volume of information being shared but it is generally a good idea to schedule weekly or bi-monthly status calls or meetings so that everyone gets on the same page. With such meetings or calls, everyone involved in the transaction gets a chance to give an update on the work they are doing, ask or give color commentaries on some of the pending requests, and ask for clarifications on items that they didn’t understand. In short, it’s a great way to reduce miscommunication to the minimum.
Act before hitting a dead end
Often times, a deal will fall apart because of misalignment or miscommunication between the parties. If a deal point is a deal breaker, say it, don’t expect for this point to magically disappear or get solved by itself. Failure to do so often times result in this specific point getting blown out of proportion over time and leading to a dead end that could have been avoided by trying to solve for it early on.
Similarly, if you’ve unearthed some issue or a potential liability as you get your information in order, it’s usually a good thing to start working immediately on fixing it. Whether the deal takes place or not, you’ll benefit from this anyway. Assume that a good due diligence will identify every issue the company has. In most cases, even if it doesn’t, legal contracts will anyway cover the eventuality of unknown liabilities happening as a result of pre-transaction activities.
Hire professionals to help manage your M&A transactions
Investment bankers, M&A lawyers, deal-focused auditors and other M&A professionals exist for a reason. These processes are long, tedious and complex. By surrounding yourself with professionals experienced in navigating these transactions, you’ll take advantage of years of experience, trials and errors, hits and misses that will not only streamline your transaction but also land you better contracts and negotiations for both Buyers and Sellers.