Photo by Andrea Piacquadio
What if we told you that a buyer was first in line to acquire a business that attracted 25 qualified and interested parties but managed to fumble the deal? You’d have another installment in our cautionary tales series. The buyer failed to acquire this business due to financing friction and his own indecision.
Financing Friction
Challenges began when the buyer’s primary bank called the acquisition “overpriced.” This destabilized the buyer, shifting his focus from closing to suspicion. Instead of seeking a second opinion on whether the business was actually overpriced, the buyer let this idea poison the remaining due diligence.
The buyer decided to use a different lender, but made the change right before Thanksgiving, which led to more delays in communication, as many people are out of the office during that time. However, that new lender took three weeks to issue a term sheet, which arrived the week of Christmas. The seller had seen a lack of urgency from the buyer, and the lender pushed the deal into the new year.
Note: Serious buyers push their lenders hard. If a buyer cites “bank delays” for more than two weeks, even in between the Thanksgiving and Christmas holidays, they are probably using the bank’s slowness as cover for their own lack of enthusiasm.
Buyer Indecision
Already destabilized by the first lender’s posture, the buyer chose to convene meetings with the seller to mull numerous “what if” scenarios, in which concerns were not resolved, and new questions emerged. Due diligence should always move from big picture issues to specific details. When buyers go back to big picture issues, that’s a red flag.
In January, the buyer’s exclusivity period ended, and the seller realized the buyer lacked the decisiveness to close the deal, pivoting to the backup pool of 25 interested parties.
Note: In a deal that’s heading towards closing, buyer/seller meetings end with tasks that get everyone closer to closing. If, after the meeting, the buyer sends a list of new “concerns,” he/she is looking for an off-ramp from the deal, not to close it.
Apex Offer to Purchase Advantage
While many standard LOIs require 90-120 days of exclusivity, our Offers to Purchase provide exclusivity for only the first 30 days, with an extension to 45 or 60 days if and only if the buyer provides a formal bank term sheet or proof of funds. We use these “exclusivity gates” to encourage momentum and progress and to weed out the unserious, unmotivated buyers.
Note: speed closes deals. Everything we do at Apex is aligned with that philosophy: we remove obstacles so we can get the transactions done.
Need help buying or selling and don’t want to get trapped by your own inexperience? That’s where we come in. Reach out today.