Deal Killers: Avoid these Deal Disasters

What can kill a deal? In this episode, we dive into the common pitfalls that can derail a business transaction. From delays caused by banks and lawyers to management teams and advisors who aren’t aligned, we explore how each party involved can either make or break a deal. Learn how communication, preparation, and having the right team can keep the process on track and lead to a successful close. If you’re a business owner thinking about selling, this is a must-listen to avoid deal fatigue and costly mistakes.

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TRANSCRIPT:

Welcome to Integrated Insights with ICCG. For more than 30 years, our team has

partnered with small business owners to prepare for and navigate the business

transaction process. Pull up a chair as we share stories and insights from our

experience on all sides of the M &A table. Alright, welcome back to the Integrated

Insights podcast. My name is Michael. I'm your host today joined by Mason and

Andrew. Today we're going to be talking about deal killers. So to start out guys,

who can kill a deal? Hmm. This is one of my favorite topics.

Deal killers. It's so fun. Who can kill a deal? I will say, I mean,

really, Anybody that's involved with the deal, right? I think we've said before,

I mean, there's a buyer, there's a seller party, there's the M &A advisor, right?

There's an attorney, there's a banker, there's CPAs. I mean, there are so many

people that can be involved in the deal. And what you don't want is for nobody to

quarterback it. And that, I think that's the importance of the right advisor.

I know there are some really, there are some poor intermediaries,

but there are really great ones and the good ones quarterback it and make sure

everybody's on the same page that we're moving forward. So, one of the worst things

that could happen is for somebody to draw out the deal and you get deal fatigue

and that is, that's just, you know, you never want that. And so, I would say

anybody could really kill the deal, but really the advisor's job,

our job is to make sure that we're keeping on task.

- That's great. So you mentioned that a good advisor, a good intermediary, they're

gonna quarterback the deal. How do they quarterback the deal in a way that moves

toward a successful deal completion? - I think part of my job has been keeping the

ball rolling, making sure that things are getting done timely, thinking about the

communication between the buyer and the seller and quarterbacking that well.

And then with the attorneys, I mean, just making sure that they're on top of it,

that they have what they need in order to complete the purchase agreement.

And yeah, just helping, keeping the ball rolling and speeding that up is our job.

Yeah, I think there are many goals to the ultimate goal. We want to make sure

we're driving towards initially the engagement letter.

That's one goal that we have with our client. We got to make sure we're working

towards that. We want to make sure we work towards putting it on the market,

right? So there's this whole prep phase and we've got to get our client to send us

information. And so getting them to send information is no small task.

And so you have to keep that ball rolling and make sure that that is consistently

happening so that you can get everything that you need in order to put it on the

market. And then when you're talking into a buyer, you want the goal is to get to

an offer, to get to a signed LI and so pushing the buyer towards that. And then

during due diligence, I mean Mason, we make, that's the reason we make weekly calls

with the buyer, right? So that we all know what the status is and we're on the

same page moving towards the same the same goal. We include the attorneys on that.

And every time that we do that, something will come up. Oh, I didn't catch that.

I do need to do that. We assign tasks to make sure that everything gets done.

And each phase is a little different on how we quarterback it and how we push

things along. But it is important that we push it along. - Communication,

communication, communication, right? We gotta follow up, we gotta update, and with all

the parties involved, we just gotta make sure everybody's on the same page. That's

awesome. So talking a little bit about due diligence, what are the key elements of

due diligence that a business can overlook? Is there anything through the due

diligence process that companies just don't think about or they miss,

you know, I think where my mind goes with that is legal.

I think a lot of times they can they can kind of push things under the rug. Oh,

that wasn't that big of a deal or, you know, that was a long time ago.

And,

you It may be a long time ago or it may not have been a big deal, but just get

it on the table. I think that's one area of due diligence that can get overlooked.

We just had one deal where the attorney went over vendor agreements and we're on

the buy side and the attorney asked our client a question, "Hey, this agreement

isn't signed. It's a key contract that you have have, and it's not signed,

you have the signed one and we didn't. And so, you know, things like that, we, now

we have to go get it, right? And so, all those things, I mean, you're right, that

is overlooked. And it's important to kind of revisit those things.

So what about market conditions in a specific industry? Does it ever happen where

the market conditions or how well that industry is performing as a whole affects the

closure of a deal? When you're in due diligence, not as much.

The reason is because you've gotten around that. Obviously, if you're doing a deal

in oil and gas and oil and Then then the deal is probably not going to get done,

right? It's just the buyer is going to go away

But but aside from that, I mean when you're in due diligence

Even if even even if as long as it's not a year -long due diligence,

right? I mean if you're in a if you're in a short shorter due diligence of max

three or three months I I think the market isn't gonna do most of the time.

It's not gonna do very much to affect the dealer. It might change minutely,

you know, different terms. Oh, we have to do this, we have to do that. But really,

whether it's going to actually kill the deal overall, most likely not.

And so I think that's that is That's what I would say to that.

I think more so it it happens When something changes in the in the business,

right an event happens There's a customer loss or you know,

the performance of the company changes because of something specific something drastic

It's never really. Hey, what's going on in the market.

But yeah, I think that's what I would say. Does the interest in economic

environment, right? So we talked about the market and fluctuations there, but what

about as interest rates go up and down, the economy goes up and down as a whole?

How can those affect a deal closure?

Or do they? Yeah, I think Not so much again, once an LOI has been signed,

not so much, because they won't drastically change within that torpedoed time.

I would say the way that, especially interest rates, it changes for the ways that

buyers approach a deal, and so they may try to be a little bit more strategic in

the way they're funding They a lot of people are fans of seller notes and you know

rolling over equity and or or

Earnouts it's there are different ways to fund a deal outside of a bank if you're

using a bank then I mean that's great, but You know the interest rate is is okay.

I can only I can only get so much for it. I can only afford so much for it.

But, but there are ways that we can, we can be strategic to get around it.

And so it's, it just, it only changes the way that a buyer approaches a deal.

Yeah. So, so basically you're saying that someone different might come to the table,

but it's not going to look different pretty much from that LOI to closing type type

of situation. Correct. That's great. Um, so let's go back to Andrew.

You kind of rattled off a list of people at the beginning of the podcast about who

can kill a deal, right? Who, which is really just anyone involved in that. So let's

dig into some of those people a little bit more and talk about what that can look

like, um, how, how a person, a different professional or different member of

management. So let's start, let's start with a banker. You just kind of kind of

mentioned financials a little bit. How can a bank or a banker kill a deal?

Not getting the loan quick enough. I mean, I think of a deal that we did with the

ERs. I mean, it took him like six months to try to get a loan.

I don't think it didn't kill the deal, but I mean it could have and so I think

bankers You know having a good banker on your side that is that can get done to

get financing quickly is super important

Going back to the To the overall Market conditions and how that plays My mind went

back to the deal we did with the fence company, where that industry,

prices were great for them, materials were so expensive,

but they started to see that decrease in price. It's something the buyer knew was

coming, and so it didn't freak them out, but I think that was and COVID as well.

So I think that that didn't kill the deal because they knew it was coming,

but something where, you know, if they didn't know it was coming, it could have.

I don't know. Not all buyers will see it coming. And that you're right, that that

does affect them. Yeah. And even if they do, they may not know what to do with

that, right? They may say, oh, we see that thing coming, but we don't know what to

do with that thing that's coming, right? So that could be a huge deal. Awesome.

Thanks, Mason. So going back to the people, some of the people that were mentioned

in the beginning of the podcast, talk about how members of the management team can

affect whether a deal closes.

Yeah. I mean, I think I'm referencing this in another episode, but just The

management team is, are going to be the ones typically that will help and do

diligence. If it's a CFO or whoever. So they can help the deal by,

you know, getting timely information, getting the correct information over to us. That

way we can provide it for the buyer. But I think we've also seen management that

is, that are family members and or very loyal team members to the owner and They

don't want it to sell they don't want the company to sell because they don't want

the owner to go And I think that at times they can because of that. They don't

they will try to sabotage the deal

And talk the owner out of it and so they can kill the deal that way Hmm. That's

great. So what about lawyers? I know lawyers are part of pretty much every deal.

How can lawyers kill a deal?

By being lawyers. I think, look, I think that,

I think it's, it's, it's important to, uh,

to, to keep them on task. I say this, advisors need to keep, stay on task as

well. But for an attorney to make sure that we're not focusing on items that don't

really need to be focused on, that aren't necessarily a part of this deal.

Not every deal is the same, and so you're not going to get the same components on

one deal as the next. And so, If you don't have an experienced transaction attorney,

those are the ones that might get a little bit more hung up on things that aren't

related to this deal, and so it's important for us to make sure we're on task.

I know it and cause things to delay,

and delay, and delay, and so not every attorney is the same,

and there are more, there are attorneys that are way more experienced with

transactions, and not all of them are great either, but you have to find the right

attorney that knows the business, and that knows transactions,

right? And that's what we ask for our clients to, hey, do you know attorney?

Do you know what their experience is? And if you don't have one,

we work with a few all the time. And so it's easy for us to refer them to an

attorney. But that's what I would say is how they can delay a deal or kill a

deal. - Yeah, by the time a lawyer is typically brought into the transaction process,

the big rocks have already been decided, right? So that when they try to bring,

when they try to introduce a new big rock to the conversation, if the two sides

don't see eye to eye, they don't have a choice but to end the deal, right? So it

can be kind of tricky. All right, that's great. So what about advisors? What about

us, other there's other intermediaries, how can an advisor kill a deal?

I think just slow playing on our end and not communicating what needs to be

communicated to the lawyer or the buy side as well.

Yeah, that's, those are my two cents. Yeah, I would, I would say most advisors

don't have the business operation experience,

and so, and don't understand business. Yeah. And so they may, just like I mentioned

with the attorneys, they may bring in something that isn't related to the deal or

to the business, right? And so, or they may miss something that is important in the

business. And so, if you have an advisor that has done software deals,

and that's what they're used to, and then all of a sudden comes along construction,

well, construction accounting is very different. And I know we're not accountants, but

There are some key things that are going to be important for the working capital

calculation and all those things, and so really if an advisor misses something,

it can kill a deal. And so having the right advisor, I mean,

there are times where I will say, "Hey, I'm not familiar, We are not familiar with

this business and this this type of business enough. I can't I can't say that I'm

comfortable with this. And if you have an advisor that is way more experience in

this specific niche, great, go for it. I'll still help in any way that I can if

you have any questions. But at the end of the day, you have to have the right

advisor. Yeah, yeah, we're going to make them aware of us not having experience in

that industry, right? But simultaneously help them as much as possible. It's amazing

how many industries we've helped business owners in. So last one to dig into a

little bit here, right before we wrap up the podcast. What about the buyer and the

seller? How can the buyer and the seller themselves sabotage a deal or kill a deal?

I think with the buyer, I think it summed it up with integrity.

I think if they say they're gonna pay a certain price,

they're gonna do it, but we've seen people that say they're gonna pay a certain

price and then they retrade.

And you know, obviously that kills deals. I think also with the buy Um,

throughout the course of due diligence, they ask the owners a lot of the same

questions. And I think that that can kind of get, uh, I can kind of annoy the,

the business owner. Um, and they're covering things that they've, they've already

covered and, um, you know, just gets old. As in the same question over and again,

even though they've already had an answer? Yep. When you get, I mean, these are the

two main parties of the deal, right? And so if they're not in agreement,

then it's probably not a good thing, right? You've got to make sure you're in

agreement and that they're on the same page. And so even personality -wise.

You have a lot of our clients, they're blue -collar people and a lot of times they

could be selling to a private equity group. And these private equity groups, they'll

come in and they'll ask questions that, "Hey, I don't know what the heck EBITDA is

or WIP or all these abbreviations and what are you You know and and and not I

mean look, that's that's I will say it's not in their everyday language And so it's

it's not that they're not intelligent. It's just that why do you why do I have to

know that in order to run my business? Right, and it's not needed to you know,

they don't need to know certain things in order to be successful but But they're

gonna be asked questions that don't make sense to them. They only make sense to the

PE group, you know and and so And so they the the PE the good PE groups will

understand that and and and really At reframe their questions.

We will do that for them as well. We'll we'll interpret but if they're not on the

same page it can kill the deal and I know you know you can kind of go through

you can you can go down the road of your diligence and and I know the seller can

say you know I'm tired of it I don't want to deal with that that's not how I I

want to do business and and so that's I mean again that's why we we try to set

expectations up front, but that's important for us.

I think, just like Mason said, it's an integrity issue where you're going back on

your word on either party, right? We've had somebody tell us I need 50 million for

my business. Okay, Well, all right, we got 50 million.

And then, and he wasn't specific about how he wanted to,

he wanted, you know, I'm okay with rolling some over or being a part of,

you know, doing some seller financing. But then all of a sudden later on,

he told us, "No, I want everything up front, and it's gotta be 55." Okay, come on

now and that's that's going back on your word and they can and it kill it kills

the deal, right? It can and and so it just just like Retreating and you this can

happen on the opposite side and so both sires sellers and buyers are

I mean, they're they they are probably there are many ways that they can kill deals

Let's be real, right? Many ways that a buyer or a seller can kill a deal. But at

the end of the day, you just have to be on the same page. Yeah. I'm thinking of

being on the same page. I'm thinking of a deal that we worked on and everyone

thought they were on the same page in terms of the employment agreement. The guy

was staying on afterwards. But everything that was said was just in conversation.

It was never in writing. And so we're like, okay, we need to get this thing in

writing. We get it in writing and then, you know, the seller is like, wait a

minute, I don't know. I don't know if we can do that. - That's not what I agree

to. - That's not what I'm agreeing to. And so that's just, that's another area of

an employment agreement and not getting that in writing that can kill a deal.

- That's great. Yeah, we talked about communication a lot earlier on, right? And I

think to double down on something that Andrew said, sometimes people come to the

table and they don't know. They don't know some of the stuff we're talking about.

But later on, if that comes out and they figure out what it is, and it does

impact their decision, impact the deal, then it can feel like integrity regardless,

right? So to our listeners, if you're sitting on the buyer or the seller side of

the table, ask the question, right? You're there to understand and the information is

being put in front of you so that you have it in front of you. But if you don't

understand it, that's why we're there. That's why we're there to help you understand

and to help you come toward an agreement together. So that's awesome. Andrew Mason,

thank you for being here today. That's all the time we have for today.

And that wraps up another episode of Integrated Insights with ICCG. Be sure to

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