Selling your business? Look out for these common deal-breakers.

Selling Your Business? Watch Out for These Deal-Breakers

When you accept an offer or Letter of Intent (LOI), you become extremely vulnerable. The buyer will request exclusivity, meaning you are “off-market” and can no longer entertain competing offers.

At this point, the buyer has the upper hand in future negotiations; therefore, your LOI needs to be airtight and extensively negotiated to include purchase price, payment structure, terms, and finally, reps and warranties.

Remember to stay focused on the business and avoid getting distracted by envisioning that boat or luxurious second home you always dreamed of buying.

It’s also wise to be prepared for the following deal breakers that may pop up once you accept an offer.

  • Target Working Capital: It’s extremely important to ensure your LOI defines working capital and the elements included in its calculation.  Also, ensure the methodology for determining the average or “targeted” working capital is clearly defined and understood by both the buyer and seller. Many deals fall apart due to mismatched expectations of what is included in working capital as part of the purchase price if it is not well-defined in the LOI.
  • Cultural Fit: While accepting the highest bidder’s offer can be tempting, you must seriously consider if the buyer is the right fit for your organization and its people. You have spent a lifetime building a company, and you would hate to see it destroyed due to poor cultural alignment.
  • Inadequate Due Diligence: If critical details are missed during due diligence, it can undermine the value proposition of the deal, diminish buyer confidence, and cause liability issues. We highly recommend you work with your professionals in advance to review your financial, legal, HR, IT, and risk management strategies to ensure there are no surprises during due diligence.
  • Mismatched Expectations: Failure to establish and align both parties’ expectations early on can result in misunderstandings during negotiations. If the buyer and seller have different assumptions about valuation, integration plans, or post-sale strategies, it can derail the deal.
  • Poor Strategic Fit: Ideally, a successful deal should align strategically with both the seller’s and buyer’s long-term objectives. A quality firm will do everything possible to find the buyer whose offer and deal terms exceed the seller’s expectations.
  • Weak Communication: Effective communication is essential throughout the M&A process to build trust, manage expectations, and address concerns. If the investment banker fails to facilitate open and transparent communication between parties, it can breed mistrust and cause the deal to fall apart.
  • Financial and Regulatory Hurdles: M&A transactions often face economic and regulatory challenges that can derail the deal if not correctly addressed. These challenges often include issues such as securing financing, obtaining regulatory approvals, and navigating antitrust considerations.

A successful acquisition hinges on a meticulously managed process. It’s important to choose a firm that not only finds the right buyer for you but also has the expertise and experience necessary to close the deal successfully. At ACT Capital Advisors, we begin by enlisting industry-specific experts to lead the strategic closing process, ensuring confidence at every step and maximizing value for your life’s work.

ACT Capital Advisors is a premier mergers & acquisitions firm representing lower-middle-market companies across all industries. ACT has a 38-year history of deal-making, closing 250+ transactions, and unlocking over $1.5 billion in wealth for its clients.

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