The Real Costs of Deal Fatigue – How Not Being Prepared for the Deal can Cost You the Deal
The Real Costs of Deal Fatigue
How Not Being Prepared for the Deal can Cost You the Deal
Deal fatigue is a common occurrence in the world of mergers and acquisitions. The parties involved get frustrated with the process and feel helpless that they can do anything to speed it up. Frankly, they’re fed up, and as negotiations or other processes necessary to close the deal seem to have no end in sight, one of both parties loses hope and wants to give up. For example, oftentimes, the timeframe between a Letter of Intent and the close of the deal takes too long and can result in one or more of the parties deciding they want out of the deal.
The High Costs of Deal Fatigue
The costs of deal fatigue are high and the complexities many. Not only has the company lost the proposed deal and any related funding, but there are many other associated costs of the deal falling apart, including:
- Attorneys’ Fees. The funds used to pay attorneys and consultants have added up over the months (or even years) and can no longer be paid from the closing proceeds.
- Impact on Operations. With the pending deal, the C-Suite has been distracted by answering due diligence questions and negotiations. And, as a result, they have not focused on the core day-to-day responsibilities of the company’s operations. This could impact many success metrics, such as ensuring customer satisfaction, building the proper pipeline of sales, managing personnel, and regularly reviewing financial data.
- Personnel Problems. There is also the potential loss of personnel if they had learned of the pending transaction and decided to pursue another career opportunity. The costs of recruiting and onboarding are always high, but this has never been truer than in today’s environment, where the costs of losing personnel have skyrocketed.
Lack of Preparedness and Its Effect on Deal Fatigue
The root cause of deal fatigue is a lack of preparedness. This can begin years prior to the idea of entering any transaction whatsoever. Decisions that are made, and processes put in place, that are not healthy for the day-to-day organization can impact the company’s ability to complete a transaction. The following are a few far too common examples:
- Lack of organization of legal documents and contracts. Unfortunately, this is a huge issue that has gotten worse in the digital age. Years ago, businesses would have filing cabinets full of documents, along with administrative personnel who managed those documents. There was a clear-to-follow process to make sure all contracts were executed and fully completed prior to being added to the filing cabinets.
In contrast, contracts now reside in emails and other cloud-based storage systems. They may have signatures, or they may not. In fact, most of the due diligence processes I have gone through over the past eight years are held up because the “completed and executed” contracts are not readily available or the parties involved thought the documents were executed and find that they never were.
- Financial statements are not up to date and do not reconcile to the billing and sales data. The ease of use of some modern cloud-based accounting systems combined with the fact that most personnel are not taking the necessary time to reconcile as often as they should lead up to outdated, unbalanced financial statements. Imagine going into a deal only to find that their representations are based on unfounded financial principles? This could not only cost you the deal, but your reputation, credibility, and integrity. There is simply no negotiating around outdated financials.
The best way to avoid deal fatigue is to be prepared in every aspect of your business and the deal itself. This will help each step move along faster and more efficiently, reducing the overall time of the transaction. If deal fatigue starts to creep in, remind everyone involved about the mutual advantages and the reasons the deal was struck in the first place. Keeping a clear vision of the big picture helps to avoid getting stuck on the smaller details.
Are you about to go into negotiations or already experiencing deal fatigue? Barker Associates can help keep the parties and the deal on track. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.