Under-sharing to failure.
Under-sharing is the most obvious reason one may expect a business sale to fail. If the seller doesn’t give enough information to the buyer, then there is simply nothing to go on for the buyer to decide.
More nuanced under-sharing is less obvious. Non-disclosure agreements (NDAs) give a sort of limited comfort to most sellers which makes them open up a bit more. The buyer’s perception of under-sharing will often eclipse that of the seller’s.
Buyers want more and more, usually before committing to something more solid for the seller. That is when the seller is in danger of over-sharing.
Over-sharing to failure
Business sellers want to do the deal. They are exuberant about their business. We know what it's like:
- Their products and/or services are well respected
- They have a string of recommendations from some pretty exciting customers
- They have solved a problem for many of them, at a good price
- They have "cracked the code" of getting into the industry ahead of competitors
- From all the alternatives, they know which supplier makes the best special source
- They have, and continue to run brilliant A/B tests which grow their profits
The prospective buyer sits listening intently. They ask the right questions. They are enthusiastic about the answers. They have follow-up questions. Another cup of tea? The meeting drags on... But the seller knows he is talking to the right guy now. Somebody who may be able to take over with the minimum of fuss.
I wrote this piece in October 2010:
It relates several incidents of how badly things can go for sellers.
That exuberance is dangerous. Without a committed buyer, the information over-share can be value-destroying. There is a way, through PrepareYourBusinessForSale that a seller can
- give a buyer enough information to make a commitment
- without jeopardising the future of the business for the owner or the future owner, and
- earn respect from other buyers, banks, and professionals.
Look, there’s no way any buyer should part with their money before they have done a proper due diligence on the deal and what they’re getting. But frankly, they cannot get to that base before they have ticked some pretty hefty boxes on my clip-board.
Seriously: Take a moment and read the Nedbank article with your next cup of tea.
M&A Due Diligence Management
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Confusing demands from buyers and funders
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