Despite our best efforts a business brokers, business transactions sometimes fall apart, even when we think they’re “in the bag”. There are a number of reasons this can happen including:
- A bad deal to begin with (this shouldn’t happen with a good listing)
- Buyer can’t get financing
- Buyer can’t qualify for the lease
- Surprise!
- Cold feet
- Personality conflict
- Bad advice
We recently encountered a situation at fell into that last category. We have been working with foreign buyers of a small business here in Virginia. Because the buyers were not US citizens, we had challenges in getting financing and even in securing a lease. With some focused effort, we were able to overcome these challenges and the deal was on track to close in just a few weeks.
During the due diligence period, the buyer decided to engage an accountant to help them review the materials, generally a good idea. However, this out-of-state accountant was entirely unfamiliar with the deal and made no effort to engage with the rest of the deal team. In reviewing the materials, she somehow determined that the business was losing money and advise the buyer to withdraw from the transaction. The business was actually very profitable and very well priced, but the adviser had gotten into the buyers’ heads and they could not be convinced otherwise. The accountants would not present her reasons or concerns, so there was no opportunity to clarify any misunderstanding the deal disintegrated.
So . . . in this case, these buyers missed out on a great opportunity in a business for which they were a terrific fit. The sellers were back to the drawing board to find another qualified buyer (fortunately, we had some backup prospects). Sadly, this was a lose-lose situation for everyone.
Lessons Learned: A bad adviser can easily tank a deal, especially when working with buyers who may not be financially savvy. Communications with the entire deal team is critical to avoid surprises and misunderstandings.