By John Hyde, Managing Director, Special Situations, Graphic Arts Advisors
We changed our minds. Those were the words that came in an email to one of our clients, an owner of a treading water printing company that had just signed a letter of intent. The seller, our client, was all excited to come out of the Thanksgiving holiday with an opportunity to move from a letter of intent to a formal contract and a closing, when they suddenly received an email from their buyer: “We changed our minds.”
Ouch. So, what does that mean for other owners considering selling their businesses? Or owners who are thinking of buying another company? What is instructive from this communication? There are several takeaways.
Timing of Information
One relevant element is the timing of when this information was provided to the seller. Was it right before the closing, after all the time and money and effort invested in legal, financial, and operational details, or was it before? The heavy lifting takes place between the letter of intent and the formal closing. Thankfully, in this situation, it was before all the effort that would go into getting from the letter of intent to the closing.
What Changed Their Mind
There are a number of reasons a buyer may change their mind. Could it be that there was something about the seller that the buyer got spooked by? In this case, the answer was clearly no. In other cases, the disclosures create a set of facts that can make the buyer kind of nervous, revealing things they didn't expect. Or maybe the information is not as clear as they had hoped.
Disclosures can also shed light on some potential problems involving a seller’s customers and their profitability. The problems could be coming out regarding employee issues, or maybe there's something that involves operational matters that the buyer is having cold feet about before they go all the way into the relationship through a formal closing.
Who Knew About the Sale
Keeping early-day conversations and intentions close when selling your business is key. One scenario that could be harmful during and after a transaction is complete is whether any “other parties” knew about the desire to sell too early.
Did the employees know? Did the customers know? Did the suppliers catch wind? Thankfully, in this case, none of those constituencies was aware of a letter of intent, and the business owner had a strong desire to sell their business. If so, this could have had incredible ramifications on the existing business, especially had the buyer backed out later in the process!
So those magic words, “we changed our minds,” resulted in a really tough day for one of our clients. In this case, the business is still viable for sale thanks to decisions made by the seller and working alongside the advisors to assist in managing information and interactions.
I encourage all who consider entering a merger or acquisition transaction to be mindful that often things don’t go as planned.
John Hyde has more than 30 years as one of the leading consultants to the printing, mailing and graphics communications industries in the areas of mergers and acquisitions, non-bankruptcy debt restructuring, and orderly wind-down of assets and liabilities. Connect with GAA at www.graphicartsadvisors.com
