The Harvard Business Review once said that 70%-90% of business acquisitions fail. There can be countless valid reasons for why the deals fall through, such as the buyer and the seller not seeing eye-to-eye on the price. However, it is often a matter of the seller not being fully prepared to make the deal. This can mean that promising partnerships wither on the vine, leaving both sides frustrated.
While some mergers or acquisitions are not meant to be, the owner looking to sell can avoid specific problems if they are proactive:
Know what state and local taxes (SALT) are involved: It is best to include information in the voluntary disclosure agreements because some buyers will be uncomfortable with potential unknown liabilities.
Seller is too vital to operations: Hands-on owners are great, but it is best to spread the responsibility to a management team that can operate the business. Buyers may be wary of the company going downhill once the current owner leaves with their big payday in hand.
Seller did not consider pension plan liabilities: The employees’ pension plan costs may be surprisingly high, particularly when considering multi-employer plans. So it is best to identify the overhead associated with them and the cost of withdrawing from them.
Seller did not consider the quality of their earnings: Average businesses will sometimes have a string of good years. Buyers are looking to future cash flow and may identify positive market conditions likely not to be consistently replicated.
Seller has too much working capital: Whether it is excess cash or too much inventory, sellers should try to keep these things in check. It is also wise to get rid of obsolete inventory and minimize slow selling inventory.
Seller is unaware of issues with facilities: The property may have looming infrastructure costs or environmental remediation that can be prohibitively high. It is best to be aware of the problem and plan (or price) accordingly.
Adding value to a business
A well-run business is attracted to other well-run businesses. An owner and management team that runs a tight ship on top of all aspects of the business can put cautious buyers at ease. It also helps ensure that the seller is justified in asking premium prices for the sale. Owners are often busy running their business, so working with attorneys who handle business transactions and business law disputes can help owners prepare for a sale and negotiate its’ conditions.