When to walk away from an acquirer

For most owners, having invested significant time and effort into a sale, accepting an offer and entering Due Diligence is usually the moment where the finish line has finally come into sight. That said, it might surprise you to know there are occasions when an advisor might encourage a seller to walk away from a particular acquirer or transaction.

Below we explore five issues that might prompt a seller to walk away from an acquirer:

Vague offer structures

Most Offer Letters or Heads of Terms (HoT) documents should spell out the offer: the headline valuation, its rationale and its structure, subject to contract, and most importantly the timeframe in which the seller will be paid the sale consideration (with disbursements to each shareholder specified, if appropriate).

Any document that fails to clearly spell out the above or uses vague or obtuse language is best challenged. Under no circumstances should a seller proceed with HoTs or entertain an offer letter that does not spell out the valuation and its components (exactly how and when you’ll be paid).

Substantial revisions to the purchase price

There are unfortunate instances of substantial revisions to the purchase price during Due Diligence. This could be the vendor’s fault – for example, if a significant downturn in the performance of the business were to occur (perhaps due to the loss of a key client), or some other exceptional event that has a major impact on the viability of the company.

However, a reduction in the headline of valuation of your company can also occur when an acquirer’s funding is subject to third party institutional investors, or consent subject to the scrutiny of an investment committee, who then refuses to support the agreed valuation. This could mean that you as the vendor are left in the difficult position of having to choose between a reduced valuation or walking away from the deal altogether.

Stalled negotiations

Whether you are discussing an initial indicative offer for your business or are well underway with Due Diligence, there are a number of points at which negotiations can stall. Whether it is as simple as agreeing your terms of service in the post-sale transition period, or more complex issues like addressing the working capital requirements within your business, there are always areas for potential dispute.

Ultimately, it is incumbent on your advisors and commercial solicitors to help you navigate the negotiations phase and to protect your best interests at all times. Discussions should never become adversarial, and if necessary, your advisor will ensure you walk away at the right time.

Exclusivity Expires

For the most part, acquirers are keen to get transactions done promptly and should direct their advisors / solicitors to expedite proceedings. Having said that, most acquirers are risk adverse and will not want to shortcut the essential Due Diligence work.

Despite all this, Due Diligence should never be drawn out or extended beyond a reasonable timeframe, which tradition suggests can be anywhere from 10 weeks to three months. Unnecessary delays in making progress on the part of the acquirer, that are not due specifically to transaction-related issues should be a warning sign, especially if the buyer is prevaricating as the deadline for exclusivity draws ever closer.

Apply ‘good faith’

Due Diligence should never be adversarial: both parties should move forward to completion in good faith, there should be mutual trust and commitment to securing the sale. The mood between the lawyers and other advisors should be collaborative, especially when resolving any perceived issues.

When a seller accepts an offer, in essence, they are choosing to leave aside all other competing interests in their business, and the opportunities those represent, to focus on the acceptable offer from one particular party. This commitment should never be treated lightly, by either seller or acquirer, as ultimately the future of the staff, shareholders, and of both businesses will likely be impacted should the deal fail to complete. ■

 

About Us

As a long-established premium provider of business sale advisory services to UK businesses, EvolutionCBS offers business owners a complimentary and confidential discussion on how their specific objectives could be met and provide pragmatic, practical advice on how to begin preparing both themselves and their businesses for a future sale.

EvolutionCBS works with owners of UK businesses in any sector, finding buyers from around the world through highly targeted research and supporting clients with dedicated Director-led teams, at every stage of their journey to a successful sale.

If you are an owner or shareholder of a business and would like a no obligation consultation on the sale of your business, please email: info@evolutioncbs.co.uk or contact us on Tel: 0118 959 8224.

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