Avoid the Fourth Quarter Fumble: M&A Diligence and Documentation

M&A Explained Series (Part 5 of 5 part series)

This is the fifth article in a five-part series about how putting the right team in place helps supercharge the M&A process, providing both sellers and buyers maximum value.

November 19, 1978. The Meadowlands. East Rutherford, New Jersey.

The New York Giants vs. the Philadelphia Eagles. The Giants were sitting on a 17-12 lead with just a few seconds remaining. All they had to do was snap the ball, take a knee and run out the clock.

Inexplicably, quarterback Joe Pisarcik took the snap, turned and tried to hand the ball off to running back Larry Csonka. Emphasis on the word “tried.”

Pisarcik botched the hand off. The ball bounded on the astro-turf and into the waiting arms of defensive back Herman Edwards, who picked it up and sprinted into the endzone for a touchdown. Eagles win, 19-17.

For Giants fans, it was a painful reminder that the game isn’t over until there are all zeroes on the clock.

For entrepreneurs selling their business, it’s the perfect metaphor. ANYTHING can go wrong at the last minute and derail a seemingly done deal.

Just like the game isn’t over until the clock runs out, the deal isn’t done until the check is in the bank.

Every Detail Matters

Of course, there are myriad reasons why a deal can fall through in the latter stages. It’s why business owners need to have a great team on their side every step of the way.

Throughout this series of articles, we’ve stressed the importance of having a Dream Team of bankers, accountants and lawyers at your disposal to help through the sale process. That’s probably never more evident than during the final 30 to 60 days when the buyer is going through due diligence.

As Brian Elias of 1-800 HANSONS said on our “Cashing Out” podcast, the buyer’s banking team likely has “some of the smartest human beings you’ve ever faced.” They will look at every detail, every cost, every contract, every projection, every employee to find a flaw in your plan. Anything to lop a million dollars here and a million dollars there from the sale price.

It is critical to get all these details right so you don’t fuel the buyer’s ability to negotiate the price down.

What are some common mistakes that can derail a sale? Failure to disclose a significant legal challenge, accounting irregularities, missed sales projections, labor issues and underperforming technology, products or services are some of the most common deal killers.

Your Dream Team is the best line of defense against the buyer’s zealous scrutiny. This line of defense doesn’t come just in the final stages of the deal. In fact, the most important work from the investment bankers, accountants and lawyers to save a deal at the end often comes in the early stages. This is when they work to provide all the details that matter, plan for every contingency and make sure all the information provided to potential buyers is completely buttoned up.

Simply put, if you make a mistake in the early stages of the M&A process, it will haunt you in the end. Your investment banking team will make sure everything is done right, right out of the gate. They will make sure that whatever rocks the buyers turn over, they will find a good, honest and forthright answer.

Elias said one of the smartest things a seller can do early in the process is to obtain a Quality of Earnings assessment. He said while venture capital firms will always conduct their own Quality of Earnings later in the process, spending your own money up front is a wise investment. Your own QofE will show potential buyers pertinent – and accurate – details up front, adding to your credibility and helping speed the process overall.

Don’t Fumble in the Final Moments

As a business owner, it’s nearly impossible to focus on every detail important to the final sale. Your focus will be divided on two fronts – one, keeping the day-to-day business operations moving forward. Two, working with the investment banking team to consummate the sale.

You simply can’t falter on either one. Take your eye off business operations, sales could drop. This will have a disastrous impact on the final sale price. Try to cut corners in the early stages of the M&A process, it will come back to haunt you in the end.

The best strategy for M&A success is to hire the best team available – one who knows your industry, has contacts at the Board and management team levels and can quickly identify the best path to a lucrative sale.

Work closely with your team to get even the smallest details right at every stage of the process. Even details as seemingly simple as executing a hand-off in a football game. Then, as the clock is winding down and the deal is about to come through, you will have full confidence in the ability to metaphorically “take a knee” and secure your own personal victory.

M&A Explained | Five Part Founder Series

We hope you've enjoyed this five-part series - to recap each stage of the M&A process and our business owner best practices when selling a company, make sure to read every article in the series:

Part 1: Supercharging Your M&A Process and Maximizing Your Exit

Part 2: Laying The Groundwork for M&A Success

Part 3: Why Your Investment Banker Is Critical To Recruiting The Right Buyer

Part 4: The Importance of Negotiation and Buyer Selection in M&A

Brian Dukes.
Brian Dukes

Brian graduated from Michigan Technological University with a BS in Mechanical Engineering and as Captain of the Men's Basketball Team. After a four-year stint at Deloitte Consulting, Brian returned to school to get his MBA at the University of Michigan. Brian went on to join his first startup, a Ford Motor Company Joint Venture, and cofound a technology and digital marketing services agency. Through those experiences, Brian embraced the opportunity to provide M&A education and support to his fellow business owners as they navigated their own entrepreneurial journeys.

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