How to Prevent M&A Deal Fatigue

How to Prevent M&A Deal Fatigue

by Joe Hellman, CPA

February 23, 2021 - While the quality of assets and the business are the primary focus in mergers and acquisitions, every deal is just as much a physical and emotional process as a financial one. Like any emotional process, fatigue is a very real element of every transaction, whether buying, selling, investing, or financing. Deal fatigue can even kill the entire transaction – but with the right education and planning, you can minimize or avoid roadblocks.

Avoiding M&A deal fatigue is a process of planning, setting expectations, educating both parties, and sticking to the plan.

What is Deal Fatigue, and What Causes It?

In the context of mergers and acquisitions, deal fatigue is the mental and emotional exhaustion that sets in as a transaction stretches on. Deal fatigue can cause sellers to "shut down" (stop engaging in meaningful conversations) due to feelings of frustration, irritation, and helplessness, creating new barriers for the deal and exacerbating ones that might already exist.

The causes of deal fatigue can be as unique as the deal itself. These are just a few causes we have seen lead to M&A deal fatigue:

  • Details changing mid-deal. The process for preparing to sell is already a long process, any shift in terms (like valuation) often causes frustration.
  • Slipping timelines. If the goal posts keep moving, this is often a sign that at least one party was not truly ready for a transaction – a stressor that can easily lead to fatigue.
  • Messy financial statements. Buyers often come to the table ready to deal, with terms and requests in hand. When they have to explain their requests or go to extra lengths to get the information they need, they start to lose confidence in the seller’s ability to transact at the agreed upon price.
  • Indecisive parties. Sellers often convince themselves they are ready to step back (or step away) from their business without mentally and emotionally preparing for it. That false confidence can lead to cold feet, indecision, and fatigue.

Deal fatigue can affect all parties, but sellers feel deal fatigue more often than buyers. The sellers often have put blood, sweat, and tears into the businesses they are running, so there is naturally going to be some emotional investment in the sale of their business. They care about the years they have given to the company, their own legacy, and taking care of the company’s people. While less visible to the market, that emotional attachment is part of every transaction.

Make no mistake: fatigue can easily kill a deal. Whether buyers are unable to get the information they need to close or the seller walking away out of frustration, deal fatigue is a common factor in unsuccessful transactions. Even in transactions where fatigue does not kill the deal, the fatigue can turn a smooth transaction into a painful process: It can cause timelines to slip further and even affect valuation. If a buyer is unable to get the information they need when they need it, they will be less comfortable with the deal and could change the terms of the deal to match.

How to Avoid M&A Deal Fatigue

The avoidance of deal fatigue often lies on the seller and their advisor(s). Before the deal begins, there needs to be a focus on preparation; once the process begins, best practice is to have constant communication and set touchpoints. Here are some basic steps to take if you want to minimize the impact of deal fatigue (or even prevent it entirely):

  • Set realistic expectations with all parties. Consult with trusted advisor(s) to understand the process, valuation of your business, and what to expect when considering a transaction. 
  • Create a timeline before you have a buyer on the line. Set the stage for a successful deal by creating a timeline that considers why you are selling, how long data will take to provide, and more. Once buyers are engaged, the process becomes a little more fluid while you match your timeline to that of a potential buyer, and a firm understanding of your timeline can provide stability and avoid headaches.
  • Prepare data and financial statements ahead of time. Every buyer has a different standard of "clean" financials, but they will all dig deep during due diligence. Work with your team and advisor(s) to prepare the information needed and avoid potential roadblocks that could lead to fatigue on both sides.
  • Appoint one contact person. Consistency is key; make sure your advisor(s) and sellers interface with a common point of contact to ensure one message and one voice. This can be your CFO, CPA, or even the CEO/owner.
  • Set up regular internal and external status calls. Keep all parties on the same page as often as possible.
  • Have a support team that you can talk with and lean on. They can be internal and/or external.
  • Take time off before starting the M&A process – and know your limits once the process begins. The M&A process can be intense, and some sellers simply are not ready. Deal fatigue is a combination of physical, emotional, and financial stress, so take your time before the process begins. Even once the wheels are in motion, be aware of your limitations and take time off if needed – just communicate with your team and the buyer so you can set expectations and hit the ground running.
Preparation is the number-one way to avoid deal fatigue. Sellers need to be proactive rather than reactive to prevent the stressors that can lead to the catch-up, last-minute adjustments, apathy, and miscommunication that cost time and effort while decreasing a buyer's confidence.

Business Valuation

Joe Hellman, CPA

Joe Hellman, CPA

Joe Hellman is a partner leading the Transaction Advisory Services practice at Redpath and Company. He provides support to clients throughout the transaction life cycle, from evaluating opportunities pre-LOI to post-close net working capital true-ups and synergy assessments on both buy-side and sell-side transactions. Joe has experience across a variety of industries including manufacturing, healthcare, construction, consumer products, distribution, financial services, and energy. He has provided public accounting services since 2008 and joined Redpath and Company in 2020.

612.940.2211 | Send email | LinkedIn