If you are considering an M&A transaction, you need to read this.

In an M&A transaction, time is not your friend. Here are four key reasons why time is the killer of all deals:

1. There is almost always shinier objects

The challenge with selling a business is that there are literally millions of businesses available for buyers to buy. Just because the buyer and seller may be working towards a deal, there is always the risk that the buyer finds a better, cheaper or more attractive company to acquire or the seller feels they can get a better offer elsewhere. Therefore, until the definitive agreement is signed and both parties cannot back out of the deal; the risk that there is a shinier object is always real. And as each day passes…this risk of deal collapse increases.

2. Fundamentals can and often do change within the seller

As time progresses, the sellers business can and often experiences sales, profitability, key person, product, customer risk and etc. These risks are always present in any business but they become amplified when focus often shifts towards the large amount of due diligence work that is required to close any deal. The presence of any of these risks can cause a buyer to modify the transaction structure and value to the point where it is not palatable for the seller and/or pull out of the deal entirely. Sellers should expect that some or all of these risks will present themselves while during the process of marketing a business.

3. Fundamentals can change within the buyer

Buyers often rely on outside capital (debt financing and equity) to fund deals. For many private equity buyers they are reliant on this capital to complete a given transaction. Therefore, a seller should expect that changes within the buyers capital structure such as an inability to raise the capital they require to complete a transaction, can influence a deal to the point where it may not make sense to complete. Further, when you add in the risk that there are shinier objects available to buyers…the risk of deal collapse as time goes on is very real.

4. Market risk increases daily

In today’s macro economic environment where a multitude of factors can significantly impact the market and certain industries….think interest rates, political landscape, war, climate change, trade tariffs, supply chain constraints and etc. Thus the potential for these factors to impact a transaction to the point of deal collapse is very real. In summary, the best way to mitigate the risk that time will kill your deal is to simply ensure that all unnecessary delays are being avoided and that speed becomes of key importance.