InSight

Exit and Growth Strategies for Middle Market Businesses

The Ultimate Deal Killer

By Jim Zipursky | Oct 14, 2008

As Investment Bankers, we are often asked, “What kills most deals?” This is an especially critical concern in uncertain economic times like those we are in now. Unequivocally, our answer, regardless of the economic situation, is always the same, “Time is not your friend in deals; it is the ultimate deal killer.”

When we reflect upon our deals that did not get done, or those that died between Letter of Intent and Closing, regardless of the specific reason, time killed all of these deals in some why or another.

Once a seller of a business makes his/her decision to sell the business, time does not move fast enough. Sellers imagine the worst: customers or employees learning of the sale; declining revenues; problems with the business; all these events happening the longer a deal takes to get done. Some of these fears are justified, others are not.

After a buyer makes the decision to make an acquisition, time does not move slowly enough. Buyers generally want as much time possible to arrange their financing, perform their due diligence, and learn the business they are about to acquire. Many buyers believe time is their ally.

We have seen buyers walk away from acquisition opportunities because they did not have the time to invest in the process; we have seen sellers lose patience with buyers who took too much time to make a decision.

The key to a successful deal is the delicate balance of timing and time; not unlike Goldilocks, we are looking for timing that is “just right.”

So what is the right amount of time? Unfortunately, specific timing depends upon each transaction. However, sellers should not expect buyers to close a deal within 30 days of acceptance of an LOI. Buyers should not expect sellers to be interested in a protracted closing taking more than 90 days from acceptance of an LOI.

Ultimately, deals are like dating; you have to know when to move fast, but you do not want to rush the process. Remember, time kills deals, so do not waste this precious commodity.


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