Author Ray Horn, Attorney, Meltzer, Purtill & Stelle LLC
A common refrain in M&A transactions is the importance of timing. A common adage is that “time kills all deals,” and, without question, there is truth to be found here. If a given transaction drags on, the parties incur additional cost, risk the occurrence of deal fatigue, and increase the risk that outside events, such as a financial crisis or pandemic, runaway inflation or supply chain issues, will undermine the transaction. However, as with any rule of thumb, it is important to retain proper perspective and pay attention to specific circumstances at hand.
In practicing law over many years, I have encountered many sellers and buyers who overfocused on timing. At certain times, clients abhorred the process and simply wanted to get through it. At other times, advisors, such as intermediaries, consultants, and bankers, pushed a client toward a certain artificial deadline, sometimes admittedly more for the benefit of that advisor than the client.
As a result of blindly pushing ahead, the rubble of poor decisions litters the M&A landscape. In one matter, a buyer was so enamored with an opportunity, he refused to pay attention to the lack of transparency from the seller. He rushed right over a proverbial cliff and into bankruptcy shortly after closing due to the failure to vet clear red flags in due diligence and negotiations. Another buyer client focused first on the deal instead of his funding, and when the funding did not materialize, he was left with a large legal bill and no transaction. In another matter, a seller was pressured by an advisor to press ahead with a buyer despite that seller’s strong reservations about the buyer’s aggressive and headstrong approach. Fortunately, this client took a step back and called a time out. Instead of the transaction doom forecasted by the advisor, the buyer reset himself and the deal restarted with cooler heads and arguably a stronger chance to actually close given more balance between the parties.
Do I believe that additional time taken results in more risk within a given transaction? Certainly. However, I also believe that focusing exclusively on timing can and does sacrifice other more important goals, such as taking the time needed to properly consider a key life decision and allow the “space” needed to sufficiently vet the other party and assess if there is a true “fit.” Without question, it is important to stay focused, but the focus should be less on simply closing by a certain date, and more on making the best possible decision in the most efficient timeframe, whether that decision is to close or not to close. In my experience, the potential risk, whether by a buyer who is normally leveraging everything to own a business, or by a seller who is almost always selling a lifetime of sweat equity, cries out for a balanced and daresay methodical approach to allow that person to identify and overcome (or at least minimize) risk elements.
Raymond J. Horn III is an attorney with Melzer, Purtill & Stelle LLC. Focused on providing responsive, well-balanced corporate transactional advice with respect to acquisitions and divestitures of closely held companies, “business divorce” matters, and corporate planning involving contracts such as buy-sell agreements. Contact Ray at firstname.lastname@example.org