Why Business Purchases and Acquisition Deals Fail

Every day, people look into buying businesses or acquiring businesses or their assets. And every day, those deals go bad, go wrong, and don’t happen. You don’t hear about them when they never materialize, but if you’re looking to buy or acquire or sell a business, it may be worth exploring why, legally, many business deals fail.

Government Approval and Regulatory Issues

Often, businesses need approval from either state or federal government agencies. Whether they are approvals, or just permit applications, it often happens that one or both of the businesses looking to merge, or the buyer or the seller have not complied with the legal pre-requisites set by state regulations to either acquire or operate the business being sold.

Too Many Lawsuits

Upon a deeper inspection of a company’s balance sheet, potential buyers or those seeking to acquire a business notice an excess of lawsuits pending. These are all unknowns—some may end up going away, but others could lead to significant judgements. These unknowns are often enough to kill an otherwise viable sale or acquisition.

Lack of Written Policies

When businesses merge or there is an acquisition, both parties want to make sure the other has their affairs in order. This is demonstrated by having sufficient policies and procedures, and contracts.

For example, are there shareholder agreements with shareholders? Have trade secrets and customer lists been protected by pre-existing and in place agreements? A company seeking to acquire another, doesn’t want to risk it all on a company that has no legal protections in place.

Economic and Business Changes

Unexpected economic downturns can ruin a deal. A seller whose business activity suddenly tanks, may not be an attractive purchase anymore for a buyer. Or, a potential seller who once had assets to buy now no longer does because of the seller’s own economic downturns.

Changes in Culture

The same may go for cultural changes or shifts. Many larger business deals and acquisitions may be so complex, and thus, go on for so long before they close, that public tastes, technology or culture may change, making the deal less attractive than it was when the parties first initiated acquisition discussions.

Bad Financial Books

Having incomplete, inaccurate, or unclear financial books and records may not automatically mean anybody is doing anything wrong or illegal. But they may very well serve as a red flag to a potential buyer.

Aside from being unable to conduct financial due diligence, the buyer may have concern that it has no idea what it is buying or acquiring in the absence of clear financial documentation.

Don’t Give Up

Note that these items don’t mean you shouldn’t buy a business, or that any of these will, by themselves, automatically preclude the purchase, acquisition or merger of businesses.

They just mean that by knowing what commonly causes business deals to fail, you can address these items in your letter of intent, or purchase and sale agreements, so that these problems end just at worst in a failed business deal—not protracted litigation.

Call the West Palm Beach commercial litigation attorneys at Pike & Lustig for support with your business merger or acquisition.

Sources:

synergybb.com/blog/selling-a-company-why-do-some-deals-fall-apart/

mercercapital.com/article/why-do-good-deals-go-bad/