The Avoidable Mistakes That Derail Deals

Small business exits fail half the time.

But many of the reasons behind why they fail are preventable. 

Last week, Axial CEO Peter Lehrman presented on this topic at Main Street Summit, a two-day event for SMB owners, operators, and investors. Peter presented on failed exits – when business owners that engage in a process to sell their business aren’t successful – and what business owners can do to prevent them. 

Below are a few highlights from the presentation, assembled using Axial platform data and insights from Axial investment banking members.

Exit Preparation

We recently surveyed our Investment Bank membership on the topic of Exit Preparation and will share the responses and various data points over the next couple months in our Exit-Ready newsletter.

The BIG 8 Avoidable Mistakes That Derail Deals

66% of Investment Bankers say that less than 1/4 of the sellers are prepared to sell before hiring them.

What percentage of sellers are “prepared” for a transaction prior to an engagement?

Failed Exits

70% of Failed Exits Are Due Diligence Related

Below are three deals that were sourced via the Axial platform and subsequently fell through for various reasons.

Where deals break down, unedited 👇

Business Underperformance During the Sale Process

• “We terminated the LOI due to poor seller financial performance during the diligence period and an inability to reset the purchase price.”
• “The company missed their 2021 projections. The owner backed out after renegotiation based on actual company performance”

Due Diligence Discoveries and Delays

• “The QoE revealed material EBITDA discrepancies prolonging the negotiation. Markets then turned, and the buyer couldn’t re-secure attractive debt financing.”
• “QoE revealed EBITDA was 80% lower than indicated.”
• “Deferred capex issues were discovered – adjusted purchase price caused the seller to back out.”
• “QoE came back light making the deal too small for the buyside firm’s mandate.”

Seller Readiness and Advisor Quality

• “Seller said he didn’t appreciate how much he and his family benefited from the business until going through the sale process.”
• “Inexperienced seller and broker had challenges with technology and due diligence requests.”

Axial Resources For Business Owners

Advisor Finder Program

Axial’s Advisor Finder program provides curated introductions of relevant M&A advisors to business owners exploring a sale. Thousands of advisors actively market their engagements on the Axial platform, which allows business owners to get as close as possible to running a comprehensive search. Beyond comprehensiveness, they are able to do so efficiently and with minimal time commitment.

Additional Resources:

• How to Find the Right M&A Advisor
• What fees can business owners expect from M&A advisory firms?
• eBook → Guide to Business Transition Planning