It’s not hard to find advice on making an M&A transaction work. But sometimes, the situation is beyond anyone’s control. We asked four M&A advisors to share the most off-the-wall reasons a recent deal they’ve worked on has failed.
Pete Sokoloff, Sokoloff & Co.
A large PE firm pulled out post-LOI because our client, a provider of services to the telecommunications industry, looked too much like some businesses they had looked at in the automobile industry. The similarities mentioned were so off the wall, that we had no choice other than go to the next bidder to complete the deal!
And then there was the seller who withheld the fact that he had spent 10 years in prison for counterfeiting… we ran away from that one!
Eric Seifert, SF&P Advisors:
The most common reason is seller’s expectations and sometimes those expectations are crazy. When most buyers are looking to squeeze the seller (to maximize their investment), it is imperative to have a fair market view of what your business is really worth. If your expectations are too high you won’t get your chance to hand over the keys and say “this has all been wonderful but now I’m on my way!”
As for a specific example, the answer would be Mother Nature’s lack of cooperation killing an HVAC deal. An unusually warm winter wreaked havoc on 4Q and FY numbers for a pretty large deal of ours. It caused the buyer to back out when ownership would not provide concessions. Happy ending: A different buyer stepped up a year later.
Joe Valley, Quiet Light Brokerage:
I recently had a listing that fell through after my client hired attorneys that were also his family members. The deal was a good one for him. The buyer was a strategic one and was willing to pay significantly over the asking price, way more than the true market value. The buyer was someone I had done a number of deals with and was always professional and more than fair in his dealings.
Ultimately, the deal fell apart because (in my opinion) the seller was engaged to a law student and the son of two attorneys. All three advised him on the transaction and fought like rabid dogs to protect their loved one from any and every possible damage, even damage that may have occurred under his ownership. In the end, everyone lost. Lesson to be learned… hire an attorney that approaches contracts from a professional view, not an emotional one.
Brooks Crankshaw, Highland Ridge Capital
We had a transaction crash due to slow adoption of the product: a medical device promoting human conception. While one might think that such a product would be easily saleable (even with FDA clearance and insurance coverage), the product has met marketing roadblocks. Difficult to believe the product struggles to get obstetrician support and, sometimes, patient compliance. Clearly, sex doesn’t always sell.
Have a story of a failed deal? Email us at email@example.com.