One of the items I love best about representing small enterprises as an M&A Advisor is that no two days are the same. Yes, offers have common elements, but it is those unique details at the margin that must definitely be taken care of on the take a flight that can mean the difference between success and failing.
To prepare our clients for those 80% offer elements in keeping we have written articles on each stage of the process and we review those articles with this client before the stage. So for example we will review the mostly asked questions from buyers on conference phone calls and we will role play with this clients on answering these questions. If your client knows what things to expect before the stage, any bump in the road does not become a deal threatening event.
We make an effort to deal with and control what we can, but generally something new areas that is not used to our experience. How those surprises are handled often could possibly be the difference between closing and the deal blowing up. In a recently available transaction that people completed, we’d one of those first-time surprises.
Luckily we were able to get past it and improve our preparation for the next deal so that as an added bonus, resulted in this article. Homework was coming to a satisfactory close and the definitive purchase agreements, seller records, and employment contracts were moving through the procedure with out a hitch. We were established to close on April 30 and ten days prior to shutting the customer said, through April we just want to see your closing amounts, so let’s move the closing back 5 days.
What were we going to do tell them no? I said, you have completed due diligence already, are you concerned about the April amounts? He said, no, we want to make sure everything is on track just. My radar went off and I considered every one of the events external to your deal that might lead to the deal not to close. Just how many deals didn’t close, for example, which were on the table during the currency markets crash of 1987?
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The second part of my radar said that people needed to be prepared to defend transaction value one final time. I suggested he generate his outdoors accountant to help us analyze specific things like sales versus projections, gross margins, offer pipeline, income run rate, etc. We were heading to prepare yourself. We understood that if things appeared worse, the buyer would request an modification.
Now here comes the surprise. The exterior accountant uncovered that there was a revenue reputation issue and our client acquired actually understated success by a meaningful amount. This was discovered following the originally scheduled closing day and it supposed that the buyer had centered his price with an EBITDA quantity that was too low. We just take his transaction value for the original offer and the EBITDA amount he used and calculated an EBITDA multiple.
We then applied that multiple to your new EBITDA and we get our new and improved purchase price. I knew that wouldn’t normally be well received by our buyer and counseled our customer accordingly. He instructed me to improve our price. Fortunately that we had a good relationship with the buyer and he didn’t end conversations. He reminded us that he had earlier given directly into a concession that people had asked for and we added several other favorable deal points, but he did not move his purchase amount.
We huddled with this client and experienced a serious benefits and drawbacks discussion. He did recognize that people got fought hard to improve his transaction. He also recognized that the customer had drawn his range in the fine sand and would walk away. The risk that people discussed with this customer was that if we came back to market, day by the least 90 days that would hold off his pay.