Mergers and acquisitions can fall through for all sorts of reasons, however with a little bit of forethought and strategizing, you can avoid some of the more common pitfalls. Here are some of the most common reasons for deals to fail – along with some advice on making sure that it doesn’t happen to you.
Poor Business Valuation
A key step in any M & A transaction, the business valuation is also where some deals can fail. This is often because the seller has overvalued the business and set an unreasonable expectation for what they can achieve – placing them at a disadvantage when attracting buyers and negotiating.
There are a great many online resources that will claim to value your business for you with just a couple of figures and an equation – but the truth is that a proper valuation takes into account a broad spectrum of different metrics and knowledge. This can include the growth potential for your specific business, your competition, your unique selling points, even your location, and sector. The only way to get a full valuation for your business is by using an external consultant – ideally, one who is experienced in the sector your business operates in, so that they know the intricacies of any relevant legislation as well as the marketplace for the type of business you are selling.
Taking On Too Much
Particularly in the pharmacy business and digital health sectors, owners/founders are often heavily involved in the day-to-day operations of the business. This can lead to transaction failure, as the process of selling a business can be very time and labor-intensive – and there are only so many hours in the day. Lack of responsiveness to buyer inquiries, inability to spend the time needed to find and screen buyers, trying to rush through various steps – all of these are signs that the transaction is doomed.
Not Understanding Your Buyer
There are some, rare, occasions when a business owner simply wants to cash out and has no concerns about the future of the company, employees, and customers. However, for most, the business has been a true labor of love and they want to know that it will be in good hands moving forward. M & A transactions can fail when the seller does not properly understand the motivations and goals of the buyer until late in the process – at which point they remove themselves from the sale. This wastes a lot of time, and can be avoided with good buyer screening – you set your requirements from a buyer (including financial compensation, long-term plans, etc) and only engage with those that align with your goals.
Pinnacle Pharmacy Group
At Pinnacle Pharmacy Group, we only deal with mergers and acquisitions in the pharmacy and digital health space, and so we have the experience and knowledge to help you avoid these and other issues.