By Melissa Sprinkle, Managing Director, Owner Resource Group
At a recent panel discussion at the Business Transitions Summit here in Austin, TX, I joined Byron Attridge and Dyanna Salcedo to discuss what really kills deals in M&A transactions. After 17 years in private equity, I’ve seen patterns emerge that separate successful sales processes from failed ones. Here are insights every business owner needs to know.
Due Diligence Takes Time
A common misconception: deals can close in 60 days. Realistically, 90 days is standard for meaningful due diligence, and that’s only if you’re prepared and know what to expect.
Here’s what surprises most sellers: the holdup usually isn’t on our side. We understand (and appreciate) that you still have a business to run. So we do most of the heavy lifting, and try to be reasonable with our asks of your time.
Know going in: the more complex your business (multiple locations, divisions, international ops), the longer diligence will take.
What Really Kills Deals in Diligence
- Financial: If trends don’t hold, or the quality of revenue isn’t as initially thought, it can present a problem. Not all revenue is created equal. Project-based revenue is not as valuable as recurring revenue.
- Management Team: We’re not only investing in a business, we’re investing in your team. The right fit – belief that we’ll be better together – is an important diligence item.
- Key Customers: Durable, long-standing customer relationships drive value for their stability.
- Owner Dependency: If all the key relationships reside with you, the buyer faces risk and transition uncertainty, and that uncertainty can have an impact on valuation.
- The Emotional Piece: For many founders who spent years (if not decades) building their business, it is understandably not just an asset, but their identity. We get it – ORG’s founders came from family businesses and understand the stakes.
What Buyers Actually Care About
Key aspects we look for when evaluating a partnership:
- Clear organizational structure (who does what, not blurred roles)
- Strong, qualified management team with integrity and values alignment
- Recurring revenue with long-term customer contracts
- Accurate financial statements and realistic forecasts
- Sustainability independent of the owner
- Culture fit between our organizations
Essential Takeaways
1. Build to Exit: Even if you don’t plan to sell for 5 years, build your business as if you’re selling it tomorrow. You’ll create something more valuable, more scalable, and less dependent on you. Plus, you’ll enjoy running it more.
2. Know Your Buyer: This is a partnership (I call it a marriage). Ask for references, speak to their current and prior CEOs, review case studies. Do your diligence on us. Trust your gut. And make sure you trust who you’re working with.
3. Start Now: You know your business inside and out. Build systems that work without you. Most importantly, start conversations with potential buyers early – I value time spent with business owners before they need anything and would love to get to know you and your business!