Déjà vu deal: What to do when a buyer comes knocking again
By Everingham & Kerr Inc.
After his M&A transaction collapsed, Fred, the owner of a midsize agricultural equipment company, was understandably wary of soliciting bids from new prospective buyers. So he took his business off the market, intending to try again in a few years. Six months later Fred received an unsolicited bid from a familiar name — his failed buyer.
Fred’s first instinct was to send the returning buyer packing. Instead, he called his M&A advisor. As the advisor told Fred, turning away a former prospective buyer without first considering the new offer can be foolhardy. Such buyers are likely to have learned from their mistakes and be much more focused and committed to making the deal work the second time around.
What went wrong?
When your company is considering a second offer from a past suitor, you’ll need to revisit and analyze the original transaction to determine exactly what went wrong. Try to differentiate between the influence of outside factors and the buyer’s mistakes and missteps.
An example of how outside factors can kill a deal is AT&T’s failed 2011 acquisition of T-Mobile, which got tripped up by an antitrust suit. Along with regulatory problems, financing is a common culprit. The sluggish credit market of recent years has made it difficult for many serious, qualified buyers to obtain adequate financing to close the deal on time. But if issues such as these no longer exist, there’s no reason you shouldn’t entertain a new offer.
Fixing real problems
But what if the original deal crumbled due to buyer mistakes or incompatibilities between the two companies? You and the buyer should address them before moving forward. If, for example, the deal failed for financial reasons, review the numbers. Was the buyer overleveraged and unable to raise the necessary cash? Ensure that the buyer has cleaned up its balance sheet and can now secure adequate financing to meet your asking price.
Or mechanics might have sabotaged your deal. Did the buyer perform inadequate due diligence and then raise an overlooked financial or legal issue late in the game? Or did the buyer poorly communicate its progress with you, move too slowly or use inaccurate valuation methods? If any of these are true, the buyer should provide you with a detailed description of how the process will operate more efficiently this time.
Culture incompatibility is another major deal-killer. If your original transaction stumbled because the two companies had dissimilar management structures or compensation levels, you need to ask what’s different about the buyer’s or your organization now that would prevent the same issue from rearing its ugly head again.
Smoother sailing If you can resolve past errors and obstacles, consider some of the positive aspects of a second-chance deal. Original negotiations have likely already laid much of the necessary groundwork and introduced you to the personalities and their negotiation styles. You can skip the meet-and-greets and get down to business relatively quickly.
And although both parties need to perform new rounds of financial and legal due diligence, you and your buyer will have a better idea of what to focus on and the types of information to request. What’s more, when you’re familiar with each other’s business models, leadership structures and product lines, you can begin planning for a smooth integration as soon as deal negotiations begin.
You have no obligation to meet with a déjà vu buyer if you’re dead set against any further negotiations. If you don’t trust the company’s owner or executives, that’s an excellent reason not to do a deal with them. But in many cases, the factors that initially attracted you to a buyer will still be in place — and you may find that many of the obstacles to closing a transaction have since been removed.
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