Deals can fail in the early stages. But if you can recognize the red flags and get out early from a bad deal, you won’t waste your time and money.
That’s one of the main messages from the panelists who spoke on why deals fail at the 2020 Smart Business Dealmakers Conference in August. They offered key insights to help buyers avoid bad deals, or at least minimize their impact.
For example, add-backs on the EBIDTA side might seem insignificant at first glance, said Doug Grimm, CEO of V-to-X. But however inconsequential they seem they should be looked at carefully because they could end up being a problem after a deal closes.
Chuck Moore, managing director of Alvarez & Marsal, followed that by noting that when the numbers are moving all around, buyers just can’t get comfortable and have confidence that they actually know what they’re buying.
“The more you can put a specific plan and demonstrate, especially on the add-backs, that those in fact have occurred and you can demonstrate those, you can drive value,” Moore said.
That’s in part why Ronald Majka, managing director at Huntington Bank, said the earlier professionals can be brought into a deal, the more a very comprehensive and well-thought-out rationale can be established. It gives professional dealmakers time to craft a plan with management from the beginning, which leads to the kind of open communication that gives buyers confidence.
When deals close and expectations are found not to be met, Grimm said one of the more common reasons is that buyers didn’t have a cross functional team looking at all the synergies at the start.
“You’ve got to have the ownership, you’ve got to have the people involved at the beginning,” Grimm said. “They’re going to be dealing with the issue post-close. That’s when I’ve seen there’s been the most successful synergies.”
That means not just legal and financial people, said William Rosin, an attorney at Dickinson Wright, but bringing in operational people to gauge the acquisition target’s fit.
“I like having buy-in on the synergies, on both sides of the equation,” said Jack Lawless, CEO of Belle Tire. “And I like paying the sellers for helping to accomplish that because that first year is vitally important.”
Watch the video above to catch everything Grimm, Moore, Rosin, Lawless and Majka said during their Dealmakers Conference session on Why Deals Fail.