Deal That Got Away - A Cautionary Tale

Deals fall apart for a variety of reasons.

The two most common are financial due diligence and unforeseen reasons at the very end.

Today’s story is about a deal that fell apart at the very end. 

7 figure deal in place, countless NDAs, 12 different LOIs and we found the right buyer. SBA has approved the loan and the buyer cannot wait to get going.

Then the seller wasn’t necessarily quiet, but not their typical self. Should have been the first warning sign.

The buyer noticed and asked me. People react in many ways when they are closing one chapter and starting another is all I could remember saying. I was a fool. 

Let’s start at the top.

Meeting this seller, I could tell they were excited to retire. They built a great business in a niche industry that had a lot of great benefits. From extraordinary profits relative to the total time in a year to generate. The perfect business for a family to run for they would work hard and then have time off to enjoy. The goal from day one was to find a family to take this over. The seller was very adamant about that which I understand. Most sellers do have a vison of their perfect buyer, in essence it’s a younger version of themselves. 

There is one question I do not have the answer to when meeting a new seller and that is “what are you going to do after you sell?” Move out of state? Travel? Start a new venture? Go back to school? I have heard them all, but then I ask to project yourself 6 months after closing to see if the seller can visualize this new life of theirs. Rarely do folks come back with a vivid description of that day in the future. That’s fine. This is an exercise into thinking about your life which is uncomfortable for some. 

This seller had their dream home and plan in place. Friends in a variety of cities with grandkids back at home. Honestly, it was one of the more vivid plans I have ever heard so I thought this was a great client to work with.

We go to market, my phone is constantly ringing, and we decide on this one buyer that had a great offer, but more importantly fit the description of who the seller thought the next owner would be. Due diligence starts and the first chink in the armor appears. Slow up-to-date financial records. Not deal breaking, but buyer was concerned. The close date gets moved back. 

Then after a reset of everyone’s needs/wants we get back on track. I should have reminded the seller the story they told me months ago about their retirement plan, sometimes we all just need a healthy reminder. We finally get up-to-date financials, and everything looks good. This is the delicate time in the process where buyer already feels like the new owner, but the deal hasn’t closed yet. I am good at having the buyers focus on being ready, instead of asking for employee introductions and client meetings. Weathered that storm, but the seas are getting rougher. 

Now the seller’s busy season is ending, and the buyer has been patient, but the seller calls to express an odd concern about the buyer. The seller did not have a racial issue before, but now this seems to be an issue for the employees are not the new buyer’s race. I couldn’t believe my ears for this buyer is the same race as the seller’s grandchild!

Now I start to question everything we worked on for years and the whole deal unraveled bit by bit. An attorney was brought in to yell and scream at everyone involved, the deal died instantly and the buyer ended buying a similar business within a year. 

What is the lesson?

Besides reminding the seller of their vivid retirement plan, that question still baffles me, but I do have an answer. If you have a great business that is sellable and financial literate, then you most likely are a high achieving person. That flame does not easily get put out. The seller was looking at a day that is going to be very different then how they were the past 20 years. Money doesn’t solve that problem. I believe the seller played the race card knowing they had no other card left to play. I truly do not believe the seller had any malice intent, but except they needed to back out and didn’t know how to say it.

What is your name? Where are you from? What do you do? These are the questions routinely asked by new acquaintances. This process felt like to the seller they were losing their name or hometown and became too much to burden. I do not blame the seller for backing out. And if we work together and this happens again, I will not blame you. The risk of working for commission is an all or nothing compensation package. 

In the end, this is your business, your identity, and your life. Let’s work together to open that next door for you when you are ready to close this one. 

Feel free to check out a few of our other blogs such as Why Work with a Business Broker to Sell Your Manufacturing Business or How to Prepare Your Manufacturing Business for Sale: A Comprehensive Guide