According to a recent Deloitte survey of executives who had businesses on the market which did not sell, the following main 8 reasons why businesses do not sell were determined to be the key issues.
Circumstances within your Control
The most common reason for not completing a business sale is achieving the right price or deal terms. In some instances there are events outside of the seller’s control. For example, in a recent Optimal transaction, a buyer had progressed the deal to an advanced stage and was unfortunately diagnosed with cancer and withdrew their bid.
One area of concern, which is well controlled by the seller, is a decline in operating performance of the business. It is very important to keep the fires stoked and the business performing optimally!
Getting Back into the Market
Although there may be many reasons more than the above 8 reasons why businesses do not sell, the survey found that of the divestitures in the past 24 months, 64% of the executive respondents reported that they had put the businesses back on the market or were planning to. In this way the sellers don’t lose momentum and can take advantage of much of the preparation work that has already been completed. The company may also be looking to refocus their strategy and refine its marketing message before re-launching the sales process which can be far more effective than trying to close a poor deal.
Qualifying a Prospect and Preparation
Matters such as “carve-out” complexity tend to indicate that insufficient planning was undertaken in the preparation for sale which may make it difficult to split the business or division away from its parent. This may be items such as IT systems or labour enterprise bargaining agreements. They can be addressed using a Transformation Services Agreement however this adds complexity and further negotiation and is generally not preferred.
It is extremely important to qualify a prospective buyer before engaging in due diligence and accepting an offer. Poorly qualified prospects who do not have the appropriate finance and may merely be a “tyre kicker” or competitor seeking information need to be identified early in the process.
An experienced M&A intermediary is quickly able to determine the validity of a prospect and ensure valuable time and resources are not wasted. A well-managed and professional sale process with an experienced intermediary will ensure that those items within the companies control are addressed. In addition, the intermediary will ensure that the business is prepared and ready to sell and to maximise deal value.