Part 1 of a 2 Part Series
You’re an experienced buyer with a handful or more of M&A deals under your belt. You’ve identified a willing target company, a performer in an industry you know well, one that ties into your acquisition strategy – no small feat! You have financing ready to go and know how to put in the work necessary to do a deal. What could possibly go wrong? Plenty, as it turns out.
How do motivated buyers and sellers, both with excellent intentions, frequently allow deals to lose momentum or, worse, become so contentious that one or both parties decide the only course of action is to walk away? In this first of a two-part article series, we’ll explore some reasons good deals go bad based on buyer behavior. In our next article, we’ll look at common ways a misguided seller can derail an M&A transaction.
We repeatedly see three buyer behaviors that, left unchecked, have killed deals.
1. The Heavy-Handed Buyer.
“Muscling” the deal. Buyers sometimes assume that they hold all the cards and any motivated seller they approach will be eager to strike a deal. This isn’t always the case. A buyer can’t force a deal through, can’t scream, kick or will a transaction into being without a shared philosophy, a shared reason for doing a deal, a cultural parallel, a meeting of the minds of buyer and seller. A well thought out strategic rationale forms the solid foundation upon which deals get done despite lengthy negotiations, distractions, contention, and deal fatigue along the way. When both buyer and seller are crystal clear on their motivations for the deal and there exists sufficient overlap of a shared vision, both parties are likely to push through to a closing.
Buyers also frequently communicate poorly. M&A transactions are all-consuming – difficult, distracting, and sometimes emotional. A busy buyer can fail to communicate, unintentionally act forcefully or in a clumsy, insensitive manner in a fast-paced, complex deal with countless nuanced decisions to be made. Parties are pulled in many directions. A buyer, having been through several transactions and doggedly pursuing a closing, might neglect regular communications with the seller; the seller, often with no M&A experience, may (will) require regular communication on deal specifics. A confused, neglected seller is not a happy seller, and a systematic, organized communication process will go a long way towards keeping all parties on track and moving towards their shared goal.
2. The Buyer That “Always Does It This Way.”
Overly rigid adherence to a one-sided plan. Going into a transaction with a plan to get it closed is critical; equally important is expecting that plan to fail. No two deals are alike, even with industry, size and geographic commonalities. Every combination of ownership structure, culture, company history, strategic rationale, financials, market position, and vendor relationships is different. These and many other variables form the background for negotiations and the definitive agreement.
Often, large corporations and private equity buyers with countless acquisitions under their belts (and always on the lookout to score the best deal for themselves) tend to follow “their own” formal M&A process with a deal team of specialized members responsible for specific tasks. The seller of a smaller business, on the other hand, is often seeking a relationship with the “right” buyer. In these cases, when process and often ‘unilateral’ Buyer desires trump the human side of the deal, there’s a real possibility the seller will pull out. A successful buyer doesn’t wear blinders and insist on a set, stilted transaction process. Cookie cutter doesn’t cut it. A successful buyer develops confidence in their ability to be flexible, instead of putting their confidence in the perceived clarity of a rigid process. Buyers that are beholden to “their way” and that like to tout “we always do our deals this way” (which often translates to meaning they got one over on less attentive or savvy sellers and their advisors). This type of myopic buyer philosophy isn’t a productive way to get the deal done – it’s primarily just arrogance.
3. The Buyer That Over-Lawyers.
This defines almost all corporate and private equity buyers to the point that we joke here that they “simply can’t help themselves.” The generic definitive agreement that’s 100 pages long and screams of overreaching with absolutely no thought or sensitivity to reasonable seller considerations. Voluminous purchase agreements that inadequately address key points already negotiated are a big red flag. Yet with all their experience, corporate and private equity buyers (and their lawyers) engage in this behavior all the time.
The seller will wonder if the buyer has even been listening for the past few months! And a purchase agreement that includes irrelevant information “just to cover all the bases” is pointless, infuriating and a colossal time waste. A buyer who waves it off with, “oh, that’s just our legal department” only makes the situation worse. Both parties need to bring the right talent to the deal, and a buyer needs the right attorney on the job – one who is heavily involved in the process, dedicated to its successful outcome and willing to tailor negotiations and the definitive agreement to the unique transaction in a manner that is fair to both parties, and who possesses a degree of emotional intelligence.
Parting Advice To M&A Buyers.
Keep your eyes on the prize (and make sure your advisors keep their eye on the prize) and don’t lose sight of the strategic rationale by getting bogged down in negotiations. Communicate, even over-communicate, key deal points. Remain flexible, favoring a tailored approach over adherence to a process that worked in another situation in the past. Hire the right M&A professionals and trust their instincts. Deals are hard work – but getting out of your own way can often get you most of the way there.
At Linden Law Partners, we specialize in quarterbacking all aspects of M&A deals, and we’ve represented buyers and sellers in hundreds of M&A transactions. While there are many common threads among the most successful transactions, we recognize the uniqueness and personal attention required for each deal. Contact us to discuss how we can help.