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Berkonomics

A million things can kill the deal.

So you’ve found the buyer, received a letter of interest, signed it, and tied your company up for a period to complete the deal.  Everyone on the board is anxious to close this.  You’ve committed time to do whatever is needed.  You’ve informed your top management of the pending deal and they know they will be impacted and are a bit skittish.  You wonder if you should make a public announcement to your troops, worrying over loss of focus, people thinking of jumping ship, competitors finding morsels of weakness to exploit.

Welcome to the club.  If you’re seeing this movie for the first time from the top, you need to ask many questions and be led by your outside team, whether legal, financial, accounting, or networking – or all.  The months between the LOI and the closing are as stressful as any you will experience as a CEO, and there are few ways to reduce the stress.

First, should you inform your employees of the deal?  You know that the buyer will be crawling the offices with legal and accounting personnel, reviewing contracts, financials, governance documentation, intellectual property, leases, and much more.  How do you explain this if not by making a general announcement?

Cashing_Out[ Email readers, continue here…] Let’s back up to the headline.  “A million things can kill the deal” is a statement from an experienced professional, and worth listening to.  During the due diligence period, before the signing of the definitive documents and establishing the closing date, it is not wise to make a general announcement, and certainly not wise to make a press release.  Public companies are forced to release this information in most cases after the LOI is signed, and this may impact you if being purchased by a public entity.

What could happen to kill the deal that looks so good to all now?  For starters, as the due diligence and documentation period drags on, you’ll have to keep your company’s eyes off the ball to continue the increasing revenues and profit momentum.  A bad quarter in the middle of the process will certainly lead to the buyer either withdrawing the offer or more likely reducing the price, sometimes to a point that is unacceptable to you.

Few companies are squeaky clean.  And in this age of Dodge-Cox and Sarbanes-Oxley regulation, public companies are thrown by any hint of activities that might have seemed all right in the past world of private enterprise, but don’t fit with the regulations on public corporations today.  Paying commissions to undisclosed third parties in order to obtain deals, hiding or entering misleading financial data, associating with anyone with a past SEC suspension, and many more “gotcha” events, qualify as strong deterrents to a good closing.

Events that you cannot control such as changes in the buyer’s circumstance, a drop in the market price of the buyer’s stock, a bad quarter at the buyer’s shop, all can contribute to abandonment of a good deal.

Both sides have to work to get a deal closed.  Professional advice before and during the process is necessary.  No one is able to do this alone, especially a CEO who is involved and too close to see many of these issues.

  • In the dance of the kimonos or the onion peels
    A closing can be as slippery as the proverbial eel
    The buyer will not be a mushroom and cannot be kept in the dark
    But for the seller he must be sure initially his agreement defangs a buyer shark
    Keeping a potential deal secret is a pipe dream disappearing with the first appearance of laptops and suits
    Employees need to know it may happen so jobs as usual and no daydreaming of future loot
    There are a million reasons for a deal to go wrong
    This poet cannot write in iambic that long
    But would emphasize this prudent thought
    Seller should know the buyer well or the deal may come to naught
    Due diligence should be a thorough, phased mutual two way street
    If the deal fails, make sure your workers, suppliers and customers you will always get to keep. (c) October 1, 2013 Michael P. Ridley aka the Alaskanpoet
    Astute as always Dave, back in the land of iambic living. Thanks for having me on the mailing list

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