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Addressing deal killers

I have been closing deals in the security industry for more than 15 years. When I reflect back on why certain deals did not, or were difficult to close, here are some of the issues I noted.


December 9, 2014
By Victor Harding

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1. The seller could not produce the data that most buyers want to see. This could include not being able to put all the relevant alarm account data onto the standard acquisition spreadsheet or turn over the company’s tax returns or show the buyer the aged accounts receivables. In the fire business, it could be that the seller did not break down his total sales into the various categories of revenue. These are basic requirements that you must have.

2. The seller had liens or other bad items pop up against his company’s and his own name when the buyer did a title search. Most buyers will want to do these checks, so as a seller get there before the buyer and see what it is there.

3. The seller would only do a share deal. The facts are that many if not most buyers do not want to buy shares. Frankly, I think this is irrational but I can’t change the senior management of the buyers. So unless you have a fairly large company (2,500 accounts or $5 million in sales) as a seller, prepare to do an “asset” deal. Exact a higher multiple out of the buyer and know that the tax consequences are not as bad as you might think.

4. The seller signed a new long term (three-year) lease on his work space as he was about to sell. Recently I had a deal crater because the buyer and the landlord did not see eye to eye; the seller wanted his name off the lease but could not get that to happen.

5. The seller was unrealistic on price or more likely inflexible on terms. Most buyers have issues that they will not budge on. Sellers need to look at the big picture and ask themselves whether not winning on that point is really going to matter.

6. The seller did know they had given out a first right of refusal. All industries have them here and there. In the alarm industry, it is the monitoring stations that have them. My advice to all alarm account sellers is to check whether you have given a first right of refusal to your monitoring station and if you have, negotiate your way out of it sooner rather than later.

7. The seller could not prove that he was the rightful owner. I had an alarm deal go sideways because the buyer wanted better proof that a divorced husband had the right to sell his business. In this case, the buyer insisted on getting the ex-wife to sign a release. If you are in that situation, have your proof of ownership ready.

The facts are, when you go to sell your company, the buyer is going to want to see a lot of information about your company, the assets it has and your customers. Think like a buyer. What would you want to see and feel good about before you drop a bundle on a new business? Most of the time what the buyer is asking for is fair game. 

Victor Harding is the principal of Harding Security Services (www.hardingsecurity.ca).

 


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