Our seller clients know that we see quite a few offers come through every week, month, and year and they expect us to provide our input on the timeframes that are “market.” As this is a buyer-seller neutral point and a strong set of mutual expectations is productive to achieving a closing, we want to give you an idea as to what is happening on our side of the table.
Nobody is getting deals closed in less than 90 days.
Even well-funded, experienced buyers seem to require 90 to 120 days get from letter of intent (LOI) execution to close in the middle and lower-middle markets.
A request for more than 120 days is exorbitant.
A third of a year is a long time to be off the market for an owner who is committed to selling their business.When the time comes, there may well be good reason to extend exclusivity but we know that our clients more often than not regret any grant of 120 days or thereabouts. We can work with them to set up specific grounds for extending exclusivity beyond 90 days where a situation warrants it, but blanket grants of 120 days, or even 90 days with a 30-day automatic extension, are something we highly discourage our clients from accepting.
Diligence should start quickly.
We encourage acquirers to use the offer letter to inform the seller about diligence timings, especially when the initial diligence list will be sent and, if possible, when the initial diligence visit will start. All too often, we see LOIs signed followed by a long pause in activity and that drastically alters our clients’ attitudes toward the buyer and the offer. We encourage or clients to have this expectation set at the time of signing and expect that there will not be a pause but rather an aggressive start, even if that start only covers a portion of the scope of the overall diligence effort. When this happens, we see diligence lists arriving within a week of signing and the first onsite (or the next face-to-face meeting) within three weeks of signing.
First drafts do not wait until the diligence is complete.
We understand that acquirers may not want to incur the cost of engaging counsel based solely on the information in the Confidential Information Memorandum and a meeting or two. But we also understand that waiting two months to engage counsel and get first drafts out does not lead to a high close rate. We all know that drafts can be sent “pending finalization of due diligence.” Our successful deal closings have the first drafts coming out within a month of LOI signing. Our clients know that if they have not seen a draft by then, the deal is not likely to close.
The seller can really mess up the timeline.
Failure to provide prompt and complete responses to diligence requests, abnormal reservation of disclosure of “sensitive” issues until later in the process, going on vacation, or simply the lack of organized files are all things we have discussed with our clients prior to going to market (and again when the LOIs start to arrive). They know that they can be the problem when it comes to timing.
But if the seller does not mess up the timing…
Our clients know that time kills all deals. And they know that if they have been prompt and thorough, and the LOI signing date is approaching triple-digit days in the rearview mirror, things are not going well. Our statistics show that few deals die in the first 100 days after signing and few deals close more than 100 days after signing. This is something we share with our clients—both to set their expectations and to motivate them to be prompt and complete.
Questions should be responded to within three business days.
We instruct our clients that deals require momentum to close. Precisely when they are most exhausted by the process is when they must reply in an even more expedient manner. Being realistic, we feel that the seller owes the buyer responses to every question within three business days, even if the response is, “We are working on it. It’s been a bit difficult to get our hands on that data.” Similarly, we believe the acquirer should respond to the seller’s questions, and send their follow up questions, within three business days. Allowing sellers to feel that anything that has not yielded a follow up within those three days has a “soft close” around it and goes an immeasurable distance in keeping sellers motivated, focused, and responsive.READ MORE >>