Why Deals Fall Apart
A successful transaction usually requires overcoming numerous obstacles — many of which are mundane. If the parties want the deal to work, talking it through can solve almost any routine problem that arises. Outside advisors can be an advantage in these negotiations. However, there are more serious issues that can be fatal to the closing of the deal. Here are some potential serious problem areas:
- The seller is unwilling to agree to the representations and warranties presented by the buyer. It is customary for reps and warranties to extend for a period of time after the deal has closed to protect the buyer from unknown liabilities, etc. If neither party bends and there are no insurable solutions, the deal can crater.
- Due diligence uncovers problem areas such as environmental concerns or additional liabilities.
- Confidential customer list. The buyer may ask to see a list of customers and wants to contact them before closing. The seller doesn't want this exposure before a contract is signed, and an impasse results.
- During negotiations, the buyer or the seller discovers there is a lack of chemistry or decides the cultures of the two companies will not be compatible (and in some cases, the synergies that were assumed do not really exist).
- A breach of confidentiality occurs, or there is a loss of creditability by either or both parties. Either of these is usually a deal-breaker.
- Seller information presented is inaccurate or incomplete. The financials may contain too many deviations from Generally Accepted Accounting Principles (GAAP). There are also times when the financial projections are unrealistic or too optimistic.
- The buyer may ultimately determine the deal is not worth the risk, or the board of directors of the buying company may turn it down.
- The sale of any business involves change on both the buy and the sell side. This can be threatening to some people. Therefore, it is important that all parties involved in the process be in accord with ownership's goals and desires. No one wants a participant or internal mischief-maker threatening the sale.
- The buyer or the seller suddenly come up with last minute demands after it appears that everything is under control and ready to close. When this happens, these last minute demands may cause the deal to fall apart.