Deal Diary: What Happens When a Buyer Pulls the Plug?

Recently, the buyer on a deal walked away from a transaction the week of closing. She pulled the plug for 2 reasons:

(1) While the annual earnings were strong, the month-to-month earnings were highly variable.

(2) The groundwork for some of the seller's earnings had been laid 6-24 months before, and due to the unique nature of the business, would take her that long to realize post-closing.

The buyer's concern was that although the business would be in good shape 12 months post-closing, she doubted she could survive the month-to-month interim period to get there, and this add-on could jeopardize the financial stability of her current business.

Did walking away the week of closing cause some frustration? Of course. It took courage to make the right decision for her and stop the process.

Would it have been better for our buyer to have done more FDD earlier in the process? Of course. Did she get lucky that she wasn't obligated to close and the plan was for her to waive a closing condition? Probably.

This transaction was also described as a simple deal, which apparently describes a transaction in which the transfer of nearly every customer and payment from some customers requires governmental approval.

The key takeaway, though, is if a deal won't pan out or is highly risky, raise your hand and talk to your advisors. You likely have options no matter where you are in the process, particularly if it's a smaller transaction. Don't let momentum carry your strategic plans off course.