The M&A Deal Killers: The Top 7 Reasons Why Deals Fall Apart

Mergers and acquisitions activity in the staffing industry continues to be highly sought-after due to the high demand of experienced professionals in various industries. If you are an owner thinking of making an exit or an acquisition, it’s best to educate yourself on how to ensure your deal flows seamlessly.

Buying or selling a business is a lengthy and complex process. Despite everything appearing to be in order and on the right track towards completion, a small discrepancy or a simple disagreement may break the transaction at any time. Whatever the details may be, there are certain scenarios that can hinder the success of a deal. Here are the top seven reasons why deals fall apart:

Unforeseen perplexities during due diligence. Due diligence is one of the most crucial stages in an M&A transaction and is the stage with the highest probability of a deal falling apart. Unearthing unexpected complications is one of the most common reasons why deals fall apart at this stage. When deals do not come to fruition as a result of a stringent analysis during due diligence, it usually signifies that the buyer’s cognizance of the seller’s business did not satisfy expectations of what they had intended to discover. Sellers will always depict their businesses with their best foot forward while buyers are on the thorough lookout for the red flags. Buyers expect that all the cards are laid on the table during negotiations, and finding unanticipated issues could lead to questioning of trust and credibility. It is critical that sellers fully disclose any outstanding matter that can potentially cause complications right from the beginning. Transparency is key and saves both ends a lot of time, effort and resources.

Imprecise calculations, information and projections. While it is vital to show buyers that your staffing firm’s financial future has strong potential, it is imperative that these projections do not overshoot reality. Although there will inevitably be minor differences between anticipated and actual figures, it is highly necessary that sellers make reasonable financial assessments, show realistic targets and can provide the historical data to back it up. Sellers tend to exaggerate the value of their company with the intent of achieving a higher valuation but they fail to rationalize that amplifying information can lead to a buyer backing out in a deal.

Time is a serial deal killer. While time’s detrimental effects to a successful business deal closing is common knowledge, more often than not, it is still overlooked. The typical understanding that the longer it takes for a transaction to close means more time for something to possibly go wrong is just one of the cases where time can deter a deal from materialization. Unexpected delays aren’t always avoidable, but they must be kept to a minimum to prevent the buyer from losing interest. An excessive time in posturing and decision-making can also dampen the speed of the transaction. Make certain that any setback isn’t due to procrastination, lack of preparation or simply not swiftly responding to inquiries. Maintain quick correspondence at all times and enforce strict deadlines and milestones to lessen the length of delays. In addition, ask your advisor to develop a due diligence plan prior to entering the due diligence stage. This will identify how the entire process will be governed, structured and supported ensuring optimal time management.

PREMIUM CONTENT: M&A Funders and Advisors Directory

The people factor. A company is nothing without its people. Key employees and the leadership team of a staffing & recruiting firm are of paramount importance because they largely contribute to its growth and success. Buyers take great attention of talent and could rethink the decision or negotiate to lower valuation if certain employees threaten to leave after the company’s sale. To ensure that key employees are retained after the acquisition, both buyers and sellers must execute the post-transaction integration strategy meticulously with the idea of creating an environment where the employees can continue to grow and thrive. However, at any point of the deal, any type of uncertainty of an employee can lead to insecurity. So, to perpetuate trust and to sustain an engaging culture, communicate, communicate, communicate. Be proactive and authentic in your communication and convey your goals and objectives with tact.

Deal fatigue. Deal fatigue is quite common in mergers and acquisitions. It is attributed to the state of being exasperated, disheartened and helpless due to the incessant and unending negotiation process. Oftentimes, members of the negotiating parties tend to experience the feeling of giving up because of constant renegotiations over terms that have already been agreed on. This can show a lack of commitment toward closing a deal. A few disagreements are inevitable, but it can get tiring to keep revisiting certain points of negotiations. Negotiations may even be abruptly abandoned due to exhaustion. In order to avoid these pitfalls that are symptomatic to deal fatigue, it is essential to assign a competent deal advisor who specializes in the field to design the deal process and structure with the proper foundation.

Sellers are not emotionally ready. There are several M&A horror stories about sellers pulling out of a deal or drastically changing terms at the very last minute. The truth is, some sellers can suddenly get cold feet about selling their business, especially if it is a business they grew from the ground up. Some sellers put their companies up for sale because of a problem they are trying to solve. Whether it is owner burnout, negative industry changes, or declining revenues, sellers can get emotional and rethink selling right when the deal is about to close. Before even going to market, sellers should already inspect market conditions, get an idea of buying multiples, consult with their team as well as third-party advisors to ensure that selling is what they really want. While a business owner can choose to sell again at a later date, the right buyer can get turned off by sellers that keep changing their minds.

Hiring the wrong M&A broker. When buying or selling a staffing firm, having a competent advisor on your side is an invaluable asset. It is critical to work with a broker who will put your business goals first and keep your benefit top-of-mind. Hire a broker who is knowledgeable in the Staffing & Recruiting space and shows appropriate posture and acumen throughout the M&A process. It takes an agile individual who is strategic, dynamic and resilient in high-stakes negotiations to deliver on your business goals. When selecting a partner to aid in an acquisition, choose someone that can effectively structure the deal, be creative when solving problems and ultimately looks out for your best interest, not his or hers.

There are a lot more factors that can kill an M&A deal, but it’s best to keep these in mind if you are looking into coming into a transaction. At the end of the day, it’s all about transparency, constant communication, compromise and patience, and finding the right partner to guide you through the process.

Eric Allison

Eric Allison
Eric Allison is managing partner of Golden One Ventures, a boutique M&A firm catering to the middle market for the staffing and recruiting industry. He can be reached at eric (at) goldenoneventures (dot) com.

Eric Allison

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