Photo by William Warby on Unsplash
If you put together a list of the top ten truisms around the Apex offices, “time kills deals” would be in the top five. In this article we will talk about two ends of the spectrum, one in which the seller didn’t listen to us and one in which the seller did.
Didn’t Listen
The first case involves a low-voltage electrical contractor out of the Pacific Northwest that was owned by a Japanese company. The original acquisition was a strategic one, as the buyer hoped to capitalize on the government contracts that the contractor held. Unfortunately, after the acquisition some of those contracts were not renewed, and by the time a private equity firm acquired the Japanese company, this American contractor was no longer profitable. They wanted to go to market immediately.
Our advisors said that this might be possible, but the Japanese officials of the company would need to move quickly and nimbly throughout the summer to close with the buyer they had found. Instead, that board refused to have one-off meetings to work on the sale, and approvals kept getting pushed down the line as the Japanese board met infrequently. By the time they had agreed, bank financing had fallen through because this was a seasonal business, and in the most recent 90-day look at the financials, the company was entering its quiet period.
Our advisors explained all that had happened up to this point and made the case to the seller that their inaction had made the deal unbankable, so a 100% seller-financed deal was the only way to go. It did finally close, but if the sellers had listened to us, they could have saved on carrying a note on the asset they wanted to get rid of.
Did Listen
The second case features two different tracks. The first track was the seller who had a liquor store which he had built into a lean machine and wanted to sell. Liquor store owners frequently get approached, so he felt as though he could FSBO. But, as we so often see in situations like these, he ended up going down the road with two different potential buyers, neither of whom panned out.
Running in the background on a second track was Valerie Vaughn, who had helped a client close on a liquor store and remembered that the client, who owned multiple liquor stores, told him that “if you ever have a liquor store, I”ll buy it.” Valerie got contacted by the seller with the failed FSBO attempt and was working up the CIM before she said to the seller, “Look, I actually know someone who could pay full price, probably. Let me ask him before we put this on the market.” The seller, having gone through the pain of listing on his own and failing (twice), was open to this.
Valerie made the call and the former client said yes immediately, and the business closed within three months. Why was that client willing to pay full price before it went on the market? Because having competed for such opportunities before, he knew the price could only go one way: up.
So, as you can see, time kills deals, as in the first case. But the opposite is also true: speed wins deals, as we saw in the second case. And whether you listen to us or not, we are always going to do the best to help you buy or sell a business.
FAQs: Speed in Business Transactions
- Q: What is the primary risk associated with delays in a business transaction?
A: Protracted timelines introduce unforeseen complications, buyers and sellers get emotionally drained and tired of the stretched-out process, there are increased transaction expenses, and business values can actually go up during the long process, making the seller more likely to back away. - Q: How does speed contribute to a successful outcome in closing a deal?
A: Speed is essential because “speed wins deals.” By moving quickly and decisively, the seller and their advisors can capitalize on a buyer’s initial interest and secure a commitment before external factors or competitive pressure can complicate the process. Highly motivated buyers who understand the business’s value and the competitive market don’t want to risk losing the deal. - Q: What are the strategic benefits of maintaining momentum in a business transaction?
A: Maintaining momentum minimizes transactional fatigue and risk exposure. For the seller, a quick path to closing minimizes the time spent managing an uncertain sale process, allowing them to focus on the business or their next venture. For the buyer, a rapid process demonstrates commitment and efficiency, giving the seller confidence that they have chosen the right partner for the transition.