Time is the Enemy of Deals
Over the past 10 years I’ve worked on hundreds of M&A transactions within the insurance industry and a major reason most deals fail to get across the finish line continues to be timing. BusinessInsurance.com confirmed my opinion in an article they published on December 28th about an 85-year-old agency owner in Kansas.
Several people will read this and the first thing that pops into their mind is that the owner loves his work so much he just couldn’t step away from the business. As an M&A professional, different things ran through my mind and I naturally looked for reasons the deal fell apart. In just 155 words, this article contains two of the biggest hurdles that trip up most deals.
1. The article states there was a month-long delay in closing. When I think back on the deals I worked on that didn’t close, the common link between all of them was that the process dragged out longer than everyone expected. Delay plants a seed of doubt in a seller’s (and often times a buyer’s) mind. In this seller’s case, the article doesn’t tell us what the problem was. Maybe there were financing issues? Did the due diligence process take too long? Whatever the reason, that delay caused the seller to step back and question whether or not selling the company was the correct move, which ultimately lead him to back out of the deal.
2. The second thing that jumped out to me was the seller’s primary reluctance to complete the transaction because he didn’t have anything to do after the sale and truly enjoys his work. As a buyer you must understand what is motivating the seller to step out of the business. In this case it wasn’t burnout, a desire to move onto other things or enjoy his retirement years. If the deal was structured correctly, by really knowing and caring about what made the owner tick, the buyers could have ensured he still had a prominent role in the business post-closing. That could be working as the office manager of that particular location, continuing on as the primary sales contact for the agency’s clients or simply letting him know he will always have an office and role in the agency as long as he would like.
Sometimes deals not closing are inevitable. However, whether you are on the buy side or sell side of the table, you can save yourself a lot of time, money and energy by designing a transaction structure that works for all parties. This keeps everyone motivated as you move through the process, ensures there aren’t long, potentially deal killing delays and will give you the best chance of getting across the finish line.
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Chris McAtee, M&A Advisor & Consultant