The most common issues that can kill transactions for the sale of a business are neither particularly complex nor surprising. Each is avoidable with foresight, preparedness, and the help of experienced sell side M and A advisors and legal counsel. When they do happen, these problems tend to cause deals to run aground as much for a lack of buyer confidence as for any operational expense or difficulty.
To be clear, losing the trust of the other parties in an M and A transaction can happen very quickly, and regaining that trust can take a long time if it can be recovered at all. At Optima M and A, we work with our clients long in advance and keep these and other common issues in mind so that we can all keep our eyes on the prize.
The only thing worse than a prospective buyer finding a big surprise in their due diligence of the target company is when that same disclosure also is a surprise at the same time for the seller. The resulting loss of confidence that the buyer has in the seller’s management team can have far reaching effects for any deal. When preparing for the sale of a business, think of due diligence as a two-phase process. The first phase is internal due diligence by and for the sell side. The second phase is external due diligence by and for the buy side. The closer the results of these two phases match and the fewer and smaller any differences are between them, the more likely it is that the due diligence will facilitate and not impede the sale of the business. The best way to prevent potential problems from due diligence, therefore, is early, thorough sell side due diligence with enough lead time before the sale to be able to find and fix any potential problems.
One specific area of due diligence that is a common source of deal killing issues is the regulatory and legal compliance of the business. The size and nature of this area vary widely between industries, sectors, and geographic areas. Regulatory compliance is a great way for buyers to get an accurate sense of what problems may lurk unseen and how effectively the seller’s team has run operations.
Ask any accountant or financial analyst. Clear, professionally prepared financial statements produced for small and midsize businesses are always met with a sigh of relief and result in confidence in the company’s management team’s leadership and operational reliability. Inaccurate, inconsistent or unprofessional financial statements have precisely the opposite effect, leaving the distinct impression that the company is similarly managed in unimpressive fashion and its leadership may not be trustworthy. A little bit of effort to keep the financial house in order is an important way to avoid this transaction mishap. Making the effort throughout the lifespan of a business to consistently produce accurate, GAAP compliant, professionally prepared financials is advantageous for a long list of reasons beyond merely paving the way for smooth and successful sale transactions.
Company valuations are a common flashpoint that can derail any sale transaction when not executed or handled well. Notably, how company founders feel about their business after years of blood, sweat and tears can cloud their vision with respect to what an accurate valuation should be. It’s therefore critical for sellers to remain cognizant of the distinction between the perceived value of their company and its valuation.
It is natural to have a little push and pull between sell side advisors and the founders’ view. This doesn’t necessarily affect the deal as long as the sell side of the transaction ultimately presents a unified and well substantiated valuation when approaching potential buyers. Failure by the sell side to move forward in negotiations with a clear and complete understanding of its valuation can affect every aspect of the deal and raise eyebrows. To be clear, it’s not that the seller’s feelings about their enterprise are of no consequence. It’s that demonstrating a lack of appreciation for how the buy side approaches valuation can make closing the sale expensive and challenging. It simply risks encouraging buyers to look elsewhere, and this is true even more so now that company valuations prepared by professional sell side advisors reflect such well established practice.
Leaving a legacy requires careful planning. When business founders negotiate the sale of their company, it’s far too easy to remain focused solely on the proceeds of the sale and what they imagine doing with them. The ripple effects of this short sightedness can doom a prospective sale transaction. Buyers focus beyond closing on an operational level, so their understanding and planning for what happens after their acquisition can have a big impact on their perceived value of the enterprise. When the sellers ignore or are ambivalent about that vital perspective, the disconnect can have deep seated effects on the deal process. Even a remote concern on the part of the buyer that they’ll wake up the morning after closing and realize that they’re left trying to fit a square peg into a round hole as they integrate two formerly separate businesses can put a sale transaction at risk. Working with a sell side advisor early in the process to make staff retention plans, timelines for transitioning systems to the buyer’s, and integrating business strategies provides a great deal of peace of mind for everyone involved in the transaction. When it comes to post closing operational planning, early is on time and late is, well, a nonstarter.
All M and A transactions, however large or small, require planning, preparedness, and attention to detail like an engineering project. Each piece of the deal, every nut and bolt, every piece of paper, takes time and has its role in a successful final result. Some require complex negotiation, some depend on third parties, and some just take time to deliver correctly. Failure to understand and communicate a clear timetable, both internally and externally with the other side of a deal, can hamstring the entire process and grind it to a halt. Similarly, placing unrealistic expectations for speed can also drive a wedge between the parties and irrevocably injure one side’s confidence and desire to complete a sale transaction.
Clear communication between the buyer and seller and their advisors and legal counsel from the outset of any M and A transaction is the best way to keep everyone outcome oriented and prevent deal fatigue. Time sensitive responsiveness, clear communication of issues and processes, and proactive and disciplined messaging both internally and externally require constant vigilance, especially as deals drag on longer than expected. When everyone understands the process for each puzzle piece and has confidence in the people responsible for each deliverable, every deal has a fighting chance of a mutually satisfactory closing.
Working with experienced M and A advisors, like those at Optima Mergers and Acquisitions, and trusting the process they lay out for a sale, planning and preparing far in advance, and maintaining clarity and discipline before and during the transaction are the keys to successfully avoiding these and other common causes of deal failure. Thankfully, these are also key factors in ensuring a smooth process and satisfying outcome for the sale of any business.
Optima Mergers & Acquisitions has been nominated for three 2025 M&A Advisor Awards for its role in the Acquisition of Texas Ecogrow by NextGen Partners.
Choosing the right sell-side M&A advisor is critical. Learn what to ask, what to expect, and how Optima M&A helps business owners sell with confidence and clarity.
A well-drafted LOI sets expectations, guides negotiations, and promotes a smoother and more efficient deal process.
