When Making an Offer Is the Toughest Part of the Deal

Recently, the owner of a healthcare business we represent called me with a plea to help encourage an interested buyer. “The buyer seems like a great fit,” he noted, “but he just can’t produce an offer in writing.”

When I spoke with the potential buyer about his concerns, he said, “It’s not about the money; it’s just the feeling that we’re committed and there’s no going back.” When I told him he could build in good reasons to opt out after a signed LOI, he responded, “That’s the best way I can explain it,” and disappeared.

This is a very frustrating experience many sellers encounter, and it points to the complex thought processes and emotions involved in each transaction.

We all know the objective reasons why potential buyers of any product or service, let alone a multimillion-dollar healthcare company, might walk away from a profitable opportunity without making a specific offer: inadequate capital and/or financing; a poor understanding of the relevant market dynamics; a bad cultural match; a lack of operational synergy; and so on.

But why would a qualified buyer refuse to tender an LOI when the deal has clear strategic value and not one of the above reasons is relevant?

Here are some experience-based observations:

• Even the most competent buyer can be overwhelmed by a great opportunity for reasons that have nothing to do with the target company. “I can’t wrap my head around the company” is an all-too-common phrase in the healthcare M+A market, even from the lips of a Harvard MBA.

• The prospective buyer may have significant internal operational problems, including integration concerns, unrelated to the potential acquisition itself. One acquirer told me several months after leaving a deal that “several of my management team members made a ruckus about the acquisition, so I caved in.” The seller had no idea this was an issue and the buyer was “too embarrassed” to tell her the truth.

• Buyers, like every other person, have personal lives that can affect a potential transaction. This is one of the most human realities that can impact deals … and they’re often invisible to both the seller and the advisor.

Here are three ways you may be able to make the process easier and more productive:

1. Ask the potential buyer to re-clarify the acquisition goals. This is the same process that many advisors employ to make sure they are aligned with the seller during the transaction process. You may uncover a roadblock or hesitation that wasn’t apparent in the early stages of negotiation.
   

2. Break the offer structure into digestible elements. If the acquirer is struggling to make a timely offer it is sometimes helpful to break the offer into its component parts (e.g., sales price, financing, non-compete provision, etc.) so you can determine any specific bases for the buyer’s concern. You may also discover other ways to make it work.

3. Ask about the problem outright. Of course, the best way may be simply to ask, “What’s the issue?” Most buyers usually appreciate your candor and will remember it in the future.

Sellers and buyers in the marketplace have distinct realities that must be appreciated and anticipated. Sellers agonize over financial planning and selling their “baby,” while buyers fret over future value and how to mitigate risk. Yet when things work right, both experience that sometimes scary, but wonderfully transcendent moment when they both say “yes” and the deal closes.

Transactions may sometimes fall apart for reasons that can’t be fully explained — but as Sir Richard Branson noted, “Business opportunities are like buses; there is always another one coming.”