Cost of a Failed Sale Process - Higher Than You Think

There are multiple issues that a business owner needs to consider when preparing for a sale of their business. One consideration that is often poorly understood is the cost of a failed deal - it can be enormous and overshadow any other deal costs incurred.

A sale process can fail for a number of reasons. The most common include:

• Financial and other key information on the business (e.g. key contracts) is incomplete or not accurate,
• Lack of management depth with no clear succession plan,
• Customer concentration is too high,
• The deal opportunity was poorly communicated to prospective buyers,
• Financial performance of the business deteriorates during the process,
• Financial and other advisors did not orchestrate an effective transaction process,
• Owner does not have a financial advisor and tries to run the sale process “in their spare time,” not giving it the required focus.
• Some business owners say, “If the process fails, I can always try again.” Unfortunately it’s not that simple.

When a sale process fails and the owner subsequently decides to try again, approaching buyers a second time is a huge challenge. Prospective buyers have already formed a negative view of the business through their initial review of the opportunity (sometimes through no fault of the business, but rather through a poorly managed and communicated process).

Even if new advisors are in place and a more complete information package is assembled, it remains a challenge to convince buyers to change their view. For the unfortunate company, the market has been “poisoned.” It becomes known in the market that the company “couldn’t sell” and rumors start to circulate that there must be problems with the business.

The business owner is now left to wait for a period of time (several years at least) for the negative sentiment to dissipate, until buyers are willing to take a fresh look at the opportunity.

At BCC Advisers, we understand that you have one chance at a successful sale process, so you need to get it right the first time. This means ensuring you have all the required information about your business prepared; an engaged, experienced and committed team in place (including company executives and external advisors); the right deal process; and the right market conditions. If you can do this, you will complete a successful deal, which in today’s market means a premium value.

This column first appeared in the BCC Advisers newsletter, Baton.