Today, a successful transaction, given the economic headwinds, is all about being ready to transact.

"It's all about preparedness," says Babst Calland Attorney at Law Kevin Wills. "If you're a seller, you need to essentially do external due diligence internally before you go to market."

For sellers, it's about understanding customer contracts and getting an accountant to review financial statements and ensure they're defensible together. Examine the cap structure and determine if it will be difficult to get consent from anyone to approve the deal. Also be responsive — if a buyer is looking at the due diligence and they've got follow-up questions, the seller needs to be ready to provide the information.

On the buyer side, Wills, speaking at the Pittsburgh Smart Business Dealmakers Conference, said it's about strong due diligence and knowing where the money is coming from.

"That's a big one right now and that's part of the thing that slowly deals down is finding money — whether it's leveraged or through investors, you need to have your funding sourced," he says.

Sellers are no longer seeing deals close in 45 days as they had in 2021. The conversation back then was about compressing the deal process, going quickly to the middle on the purchase agreement and requiring a shorter due diligence period.

"It was a sellers' market, so buyers had to do anything they could to stand out, whether its buying reps and warranties insurance or just streamlining deals," Wills says. "End of '21 early '22, I did two back-to-back transactions where we had to agree to close 30 days from the LOI; so, we get 30 days to negotiate a purchase agreement, do our due diligence, close. And sellers were able to do that. Now, the world has changed quickly."

Still, some of the tendencies of that time are still present in deal negotiations. He says people are still moving to the middle on the purchase agreement quicker and not spending as much time negotiating as they used to. But the diligence periods are normalizing.

"You really can't do a proper deal on 30 days," he says. "There's going to be post-closing integration issues that come up when you do that. So, the deal processes are slowing down but it's also not so much a seller's market. Buyers able to take their time and instead of just glancing under the rock, they're looking under the rock and (when) they're finding things that they may have glanced over a year ago to get a deal done, they’re now fixing it first."

And because it's not a seller's market, due diligence extensions are available and given regularly. A year ago, he says a seller could refuse an extension because there was a strong chance they'd get a deal done with someone else. Today, that's not the case, so their tendency is to allow more time to keep the deal moving.

To get around some of these issues, buyers are getting creative, and some of that creativity is expected to spill over into future dealmaking as external forces drive deals regardless of the economic conditions. That's happening through mechanisms such as seller financing — having sellers hold notes instead of going through a traditional lender and take a slightly lower interest rate from the bank. With seller financing, there aren't debt service ratios and other covenants that could be tripped — as long as payments are made, it's good with the seller.

Some regional banks have also been willing to provide the flexibility that larger banks might not. Regional banks might, for instance, offer a tighter rate spread in the commitment letter than a larger bank would give, which produces better rate certainty and better return. But it might take more effort to get the bank comfortable with the transaction before they'll commit.