In business since 1991 with a focus on staffing industry M&A, we’ve brought hundreds of transactions successfully across the finish line and we‘ve seen our share of ones that died along the way.
Deciding to sell your company or buy a company is a huge event in you and your company’s life. Being prepared can make the difference between success and failure in the M&A transaction process. Not to mention, there are significant costs involved in the process on both the buy and sell sides. So, not being properly prepared for this involved, complicated transaction can be a huge waste of time and money.
With proper preparation a staffing M&A transaction can be a tremendous success. Below is a list of five reasons deals fail that a seller and buyer should be aware of:
- Poor Preparation of Company Paperwork – An owner cannot sell their company without up-to-date accurate financials and the means to keep those financials current during the transaction. Whether you have an inside accountant or outside CPA compiling your financials, the ability to produce them on a timely basis in an accurate format is essential. Time is the enemy of all transactions. A delay in producing financials, or other operating material such as leases, compensation and benefit plans, workers comp history, etc., can delay the closing and allow uncontrollable influences to scuttle the transaction.
- Unrealistic Valuation of Your Company – Not knowing what current market values and transaction structures are will stop a lot of sales in their tracks. An owner may have heard from a friend that they got a high multiple for their company and hence he/she should too. Having no idea what their friends’ deal structure was, including cash at close, earn out or note requirement, and distribution of the balance sheet and working capital, could make a huge difference in the size of the multiple. Make sure you do your homework on this subject or consult with a knowledgeable advisor for the staffing industry first. RACC offers a free back of the envelope valuation for potential sellers before they take a giant leap into the selling process.
- Lack of Sufficient Capital by the Buyer – A sellershould not enter into an LOI or Term Sheet agreement with a buyer before having more than adequate evidence that the buyer can afford to buy the seller’s company. If the seller is using an M&A advisor, than it is that advisor’s responsibility to vet the buyer for evidence of sufficient capital. If the buyer says they have to borrow some or all of the money to make the purchase, then evidence that a lender will lend that money is essential in advance.
- Quality and Commitment of Management Staff – Most owners prefer to not let their management team know they are thinking of selling the company. The owner doesn’t want to spook the key personnel that are making the company successful. Although this is usually a reasonable approach, when an owner is planning on leaving the company after the sale, they should insure that key management is committed to staying on if there is a change in ownership. Few buyers have excess management to run the new purchased company and hence need assurance that they are buying management along with the book of business. At the same time the seller should not over-hype a manager that may not stand up to scrutiny once the buyer meets them.
- Poor Strategic Fit or Poorly Matched Company Cultures – This is a critical criteria that will doom a completed transaction and should be considered before a sale to avoid a lot of wasted time and money. Here again a good M&A advisor is the best way to avoid this problem for both the buyer and the seller. Knowing the company culture of both parties in advance is paramount to avoiding a clash after a sale. Also a buyer should be careful that they haven’t fallen in love with the culture or owner of the seller and didn’t consider how the new book of business could impact their strategic growth and brand recognition.
Of course there are many more aspects of a sale and purchase that could undermine a successful acquisition and before wading into this process a buyer or seller should consult with a qualified advisor that knows the staffing market and the M&A process. RACC offers obligation free consulting for those owners looking to enter this very viable and mostly rewarding retirement and growth arena.