Table of Contents
Turning Your “Dream” Deal into a “Done” Deal
The mergers and acquisitions (M&A) market is showing significant signs of life, at least partly fueled by easing inflation and interest rate concerns. And because we’re feeling particularly fear monger-y today, let’s talk about common M&A missteps. Awhile back, we discussed foundational considerations that should be addressed very early on in a deal. In today’s market, financing is still tight, buyers (and sellers) are wary, and patience for drawn-out negotiations is shorter. If you want to get a deal to the closing table without stumbling and falling along the way, the key is knowing where the gaps are and filling them in early on.
Here are a few things buyers and sellers should do to ensure that they don’t delay (or worse, completely derail) an M&A transaction.
Give Due Diligence its Due Respect
Due diligence isn’t just a box you check off. Buyers who cut corners on diligence for the sake of getting a deal done fast often discover problems only after they’ve already invested time, money, and credibility in the deal or the business itself. Sellers who drag their feet responding to information requests, fail to send complete information, or don’t even have the right documentation in place to begin with, send a different, but equally damaging, message: there’s something here that you don’t want to see.
Lenders, insurers, and buyers are all asking harder questions, so slow or incomplete diligence responses don’t just risk frustrating the other side, they raise red flags that can freeze a deal entirely.
Set Expectations Early On
We know this seems like basic advice, but stay with us because we’re talking math. No, seriously, stay with us. Many deals start strong and fall apart later because the math was never aligned to begin with the appropriate valuation and financial advisors. Valuation that was built on aggressive or inconsistent EBITDA calculations, unclear or unrealistic earnouts, or faulty growth assumptions almost always come back to haunt the deal. The same goes for working capital targets that sound reasonable in theory but don’t match how the business actually operates in practice.
In today’s market, parties are far less forgiving when numbers don’t hold up under scrutiny. If expectations aren’t set early on and clearly, the deal often survives just long enough for someone to feel misled. That’s when momentum disappears, and you fall down the deep, dark pit called “an impasse.”
Get Necessary Consents and Assignments
Unassignable key client contracts. A lease requiring an absentee landlord’s consent. An SBA loan that needs written approval and even more due diligence before the “all-clear” to close. Bulk sales notice requiring a clear purchase price allocation (eek). These issues are rarely fatal on their own but require time to address.
Too often, parties push to rush the deal and take a “we’ll figure it out later” approach to notices and consents. In reality, third parties don’t care about your timeline, your valuation, or your closing date. Get them on board!
Review Employee Packages and Assess Flight Risks
A business isn’t just its contracts and financials, it’s the people who keep it running. Oftentimes, a deal will include terms providing that the buyer will hire or otherwise keep certain (or all) of seller’s employees. What if those employees weren’t notified of the deal, were planning to retire, or just plain don’t want to work under new management?
Buyers frequently underestimate employee flight risk, particularly when key executives, sales leaders, or technical personnel don’t understand their post-closing role or compensation. In a market where talent is mobile and employees hear about deals long before closing, failure to plan for retention can materially change the value of what’s being acquired, sometimes overnight, generating uncertainty and delays. It’s just not something to deal with later.
To sum up: in today’s deal environment, “later” is rarely an option. Careful, timely planning is key, and as always, if you’ve got questions, you know we’ve got answers!
~ The W + K Team
ABOUT WEINSTEIN + KLEIN P.C.
Founded in 2019, Weinstein + Klein is a modern boutique law firm that serves as outside general counsel to businesses across industries. Weinstein + Klein provides strategic, day-to-day legal support with a focus on labor and employment law, corporate and transactional matters, and business litigation. Weinstein + Klein works closely with business owners, executives, and entrepreneurs to proactively manage risk, navigate complex employment issues, and handle key transactions – from formation to funding to exit.