The Denver Post


Being good at building a strong business doesn’t mean you have the chops to structure and close a merger

Gary Miller - Sell your businessBy Gary Miller – Managing Director, Consulting Division, SDR Ventures

Many business owners are jumping on the bandwagon to sell their companies, trying to take advantage of the current hot market and the frothy multiples being paid by buyers. Combined with the baby boomer tsunami, more businesses are for sale today than ever before.

This trend creates a competitive environment in which buyers anxious to grow their businesses through acquisitions, as well as organic growth, are looking more closely at the quality and price-value relationship of any potential acquisition.

However, 80 percent of owners who put their businesses up for sale never close the transaction. Over years of observation, I have found there are eight basic reasons deals fall apart:

Value expectations too high. The top reason deals fail to close is a seller’s unrealistic expectations about value.

Many business owners read and hear about companies or competitors selling their companies for very high sums and believe that their businesses are worth the same.

Unclear story elements. Business owners need to think like buyers. Attracting a buyer is like preparing for a beauty contest. Companies that show best win. Often, because of poor strategic planning, the business owner cannot articulate clearly the company’s competitive advantages, its growth opportunities, its revenue potential, and its ability to produce significant returns on invested capital.

Quality of earnings. Audited financial statements confirm financial accuracy and help validate forecasted performance. Lack of clarity about key business drivers, sales pipeline backlogs, back office operations, and the consistency of growth and earnings inhibit a buyer’s enthusiasm.

Length of time. Every deal has its own momentum and a life of its own. But time is the enemy of all deals. As the deal process drags on, buyers and sellers start to lose interest.

Material changes. Material changes in the business’s operations can occur at any time. While these changes may be completely out of the seller’s control — recession, loss of a large client, loss of a key employee — these changes can stop a deal from closing. However, if a material change occurs, the seller must disclose it promptly and fully to the potential buyer. Nothing will destroy a buyer’s trust more quickly than the seller failing to be upfront about a material change in the business.

Renegotiating terms of the deal. Renegotiating the terms, conditions, structure, representations and warranties of a settled deal can be a deal killer. At the very least, backtracking components that have been previously agreed to kills momentum, adds time and causes deal fatigue. Worse, it fosters distrust and can call into question all other components of the deal structure previously negotiated.

Reaching for the last dollar. It is completely understandable that sellers who have put everything into their businesses want to get every dollar out. Often, the owner traps herself mentally by fixating on a specific price. Multimillion-dollar deals have been lost over a few thousand dollars. I recommend to clients that they should examine all components of the deal’s structure — not just the final offering price.

Inadequate advisers. Selecting a quality deal team is critical. In my experience, owners who are very good at building successful businesses, often stumble in a sale.

Selling a business is a once-in-a-lifetime event for most owners. But most also have never sold a business and do not have the skills to complete a deal on their own, which increases the likelihood that they’ll leave money on the table.

Gathering a team of skilled advisers can help. These aids should include an experienced mergers and acquisitions consultant to lead the transaction team; a skilled wealth management firm to help owners preserve their proceeds and to minimize tax obligations; a law firm with significant transaction experience; an accounting firm familiar with the tax implications of various deal structures; and a strong investment banking firm with deep industry experience, solid valuation expertise and keen negotiating and closing skills to get the deal done.

Gary Miller is the managing director of the Consulting Division of SDR Ventures, a Denver-based investment banking firm. Gary advises business owners on strategic business planning, M&A, and raising capital. Gary often speaks at conferences on M&A matters. Contact 720-221-9220 or

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