Mergers and acquisitions are very common in most industries, especially so in the construction industry. With hundreds of new companies cropping up every year and even more sales being made, you can expect to see a number of successful mergers and acquisitions take place between construction companies.
However, not everything goes as planned during mergers and acquisitions, and sometimes, a business sale deal can fall apart right when it seems as if the deal would close successfully.
There are usually a number of reasons that can prevent a buyer from wanting to go forward with a deal. Even if that is not the case, other reasons can crop up once the sale deal is already in process, which can make the deal not closing come as an even bigger blow to both the sellers and the buyers involved.
8 of the Most Common Reasons for why Business Sale Deals Fall Apart
Businesses can go through a series of ups and downs, and in many cases, some of these ups and downs can interfere with a business sale deal. From the initial decision to sell a company to preparations, due diligence, the transition period, and eventually closing the deal, a number of problems can arise. Problems at any stage of the business sale deal can lead to the deal falling apart and the seller, buyer, or even both parties pulling out of the deal.
In the construction industry, there are many instances where mergers and acquisitions do not go forward, and business sale deals fall apart.
We’ve put together a list of the 8 most common reasons why business sale deals fall apart:
1. The Seller Does Not Approve the Closing Price
A lot of the time, an owner will put their business up for sale without having a proper understanding of their business’s value. This might be because of a number of reasons, ranging from uncertainty in the market and unexpected negative or positive growth of the company to the owner not working with professional business valuation experts.
Whatever the reason, it is possible that the owner might have an unrealistic idea of what their business is worth and might be setting the asking price significantly higher than it ought to be.
When it comes to the actual sale, a buyer might not be willing to accept a high asking price for a business that they think isn’t actually that valuable. So, if the seller and buyer do not agree upon a closing price for a business sale deal, it is very likely that the deal can fail, and one or both parties will pull out of the deal.
2. There Are Unexpected Discoveries During the Due Diligence Process
In many cases, a business sale deal can be underway, and everything might seem as though it is on track, only for there to be problems during the due diligence process. Due diligence is the process of investigating a company that is being bought or acquired. The investigation uncovers information regarding most aspects of a company so that the buyer can decide if they want to move forward with the deal.
As the due diligence process is underway, the professional team of due diligence experts might come across some unexpected discoveries that can lead to the buyer pulling out of the deal. Such discoveries could be regarding the company’s finances, its management and employee structure, legal aspects, corporate aspects, or anything else relating to how the company is being run.
Usually, in order to avoid problems arising during the due diligence phase of a sale deal, a seller usually carries out their own due diligence to uncover any potential problems that need to be dealt with before a buyer is brought into the picture.
3. There is Buyer Fatigue in the Industry Market
Another reason why a business sale deal might fall apart once it is already underway is buyer fatigue in the industry market. Buyer fatigue is a situation where buyers in the market are tired from previously lost deals and are in a hurry to close a current deal.
In such a situation, a buyer might demand a seller to provide a lot of information regarding the business in a very short timeframe. Should the seller fail to meet the buyer’s requirements, the buyer would then pull out of the deal and take their resources elsewhere.
Buyer fatigue is extremely common in the construction industry, given the high number of companies that are bought and sold quite frequently. As such, buyers have many potential companies to choose from when merging or acquiring, and buyer fatigue can be a reason why many business sale deals fall apart.
4. Indecision on the Part of the Seller
Having built up a company from the ground and owned and operated it for many years can mean that some sellers have a difficult time parting ways with the company and selling it.
A seller may experience many instances of indecision during the business sale deal, starting with indecision on whether it is the right time to sell the business and if they should hold off for a better deal to arrive, all the way to questions about whether selling the business is even the right decision to be making in the first place.
If the seller’s indecision grows too much at any point during the business sale deal, it can lead to the seller wanting to pull out of the sale and not close the deal, even if things were looking positive so far. This is usually avoided if the seller has a trusted advisory team to support them and help them come up with a clear exit path. Sellers that are confident in their reasons for selling and have a clear timeline on when they want to sell their company are less likely to pull out of a business sale deal once it is already underway.
5. The Business Stops Meeting Performance Expectations
In most cases, a business that is being sold has to be adequately prepared for the sale. This means that growth and performance plans have to be outlined, and the company is expected to meet certain performance milestones.
For example, a sale deal might outline that a company will increase its revenue by a certain percentage by the time the deal closes. If a business being sold does not end up meeting performance expectations, then the buyer may choose to pull out of the sale, and the business sale deal can fall apart.
Additionally, there may also be the case where the owner of a business becomes too focused on the sale, and performance during the transition period falls due to this distraction.
It is important for the current owner/the seller to run the business effectively while the transition period is underway to ensure that the business will continue to perform up to expectations once the sale has been completed and ownership is transferred. Poor performance during the transition period leads to the buyer losing confidence in the business.
6. The Seller and Buyer Have Personal Conflicts
Sometimes, problems may not arise in regards to the actual sale process or the due diligence during a business sale deal, but instead, when the seller and new buyer come into contact.
A situation may arise where a seller and new buyer simply do not get along, are unable to come to a conclusion on a certain matter, or have some kind of personal conflict. In such a case, a seller might decide they do not want to sell their company to a particular buyer, or the buyer might decide that they do not want to do business with the seller.
Additionally, sellers and buyers usually have to work together during the transition period and also for some time after the sale has been closed, and one or both parties might be unwilling to do this.
In the case of personal conflicts between the seller and the buyer, a business sale deal might fall apart, causing the sale not to move forward.
7. There Are Last Minute Problems with Financing the Sale
Given the current economic climate, it isn’t too unheard of for there to be unexpected financial troubles. A business sale might be well underway when some last-minute financial problems arise. It is possible that, for some reason, a buyer might be unable to finance the sale and pay the closing price agreed upon. This can be for a number of reasons, such as difficulty obtaining a bank loan to the buyer having to deal with some unrelated and unexpected expenses.
There can also be disagreements between the seller and the buyer on how they wish to finance the business sale, whereby the seller might be unwilling to help finance the sale.
Whatever the reason, if there are problems with financing the sale, it is very likely that the business sale deal will ultimately fall apart.
8. Outside Factors Can Influence Business Sale Deals
And finally, a reason why a business sale deal might fall apart that is completely unrelated to the seller, the buyer, and even the business itself is outside factors influencing the deal. It is possible that a business sale deal could have been going very well, with both the seller and the buyer satisfied with all aspects of the sale, only for an unexpected outside factor to come into play.
Such outside factors could be just about anything. Some examples to give you a better idea include an economic crisis like the financial meltdown of 2008 or a global pandemic like Covid-19 that led to worldwide lockdowns and the stopping of most economic activity. In the case of any outside factors like these ones coming into play, it would be very likely that a business sale deal could fall apart.
The Bottom Line
In the construction industry, hundreds of companies are bought and sold every single year. Yet there are many instances where mergers and acquisitions do not go forward, and business sale deals fall apart.
In this article, we have gone over many of the major reasons why a sale deal might not go forward, including reasons like unexpected discoveries during due diligence, buyer fatigue, personal conflicts between the seller and buyer, the business not meeting performance expectations, and so on.
In many cases, a business sale deal can be saved and stopped from falling apart with the help of a successful and professional advisory team. A team that can help sellers and buyers in properly evaluating a business, coming up with growth and sales plans, and completing the due diligence process can ensure a successful future sale.
N3 Business Advisors – Construction Industry Mergers & Acquisition Advisors
If you are looking for a team of experienced and professional business advisors to help you buy or sell a company in the construction industry, N3 Business Advisors is the best company to help you.
No matter what goal you are hoping to achieve, be it company growth, merging or acquiring, preparing your business for sale, evaluating your construction company, carrying out due diligence, or meeting any other company goals, we have a qualified and diverse team that can help you out.
N3 Business Advisors has over 30 years of experience working with companies in the construction industry. Our team is made up of lawyers, due diligence experts, valuation experts, business advisors, accounts and financial advisers, and other professionals who can help you achieve your company’s goals.
If you would like to set up a confidential consultation with N3 Business Advisors, visit our website, or call us at 647 967 4222. N3 Business Advisors is based in Ontario, and our office is at 55 Village Centre Place, Suite 200, Mississauga, ON L4Z 1V9.