Deal Structuring Nerd | Corporate Lawyer + Advisor at Frank Law + Advisory | SME Investor at Brolly Capital
So this week I had a deal die. Here are the details ⬇️ After months of work the deal was killed by the sell side “advisor”. Disappointing but it came as no surprise to me and our client. We were on the buy side and the business perfectly matched our client’s criteria. It was in the right industry. It was the right size. It had all the right attributes that matched to our thesis. But what it didn’t have was a good advisor. This is what happened. December 2024 the deal was found by our client. On first review it looked really good. High level data was received. Initial high level DD looked good. January 2025 we met with the owner and the “advisor”. Great meeting. Really good connection between the seller and our client the buyer. All things looking good. Late January 2025 we submitted the 1st Term Sheet. Deal was and needed to be a share purchase. Price was in line with industry standard (maybe a little over). February 2025 we received feedback from the “advisor” regarding price. No alternate position was given. A meeting was suggested to understand the “feedback”. March 2025 we met on a beautiful Sydney summer morning….in a gaming room of a pub. We were asked to put our best foot forward. Late March 2025 we submitted a revised term sheet with a risk on and risk off structure. April 2025. Price was accepted BUT certain terms in the term sheet were not agreed. They were…drum roll….exclusivity and DD requirements. I had a chat with the “advisor” where I explained the exclusivity and DD requirements. The “advisor” assured me that our DD was “more than what a listed company would require” and “it wasn’t necessary. The seller would of course agree to the warranty and indemnity issues to completion because he has insurance”. End of April. Deal dead. Here are some of the red flags 🚩 - Price didn’t change between term sheet. Yet “advisor” was adamant the initial price was “never going to work”. Time wasted. - Meeting in a gaming room of a pub because they didn’t want to be seen. This is wild. - Not agreeing to exclusivity. They simply didn’t want to “stop shopping”. - Disputing the DD requirements. - Not understanding that sellers in share sales are giving warranties and indemnities in the SPA. - Not understanding that tax due diligence exists. - Not understanding that the buyer takes a risk in fees and costs to provide the buyer with the price they way. Essentially this deal was doomed before it started. The seller has missed out on a quality buyer with a clean exit because the “advisor” couldn’t get out of the way of their own shadow. Welcome to SME deal making. Give me your horror stories! #corporateadvisory #sme #acquisitions #corporatelaw
Sounds like a frustrating experience James Frank and a disappointing outcome. Not asking specific numbers, do you think if you were dealing with a EV say 10X this amount, you wouldn’t expect a lot of the same red flags?
This story doesn't sound plausible. That's not how advisory firms work. Are you sure it wasn't a business broker? Some brokers are good, some not so good. This sounds like a smaller deal that would have been fronted by a broker, not an advisory firm.
Agree common story - doesn't sound like there was a lot of Vendor Due Diligence done on their part. They should have been prepared for a reasonable period of Exclusivity as well as a period of answering hard questions that a seller would reasonably have. Presume you didn't get access to any sort of dataroom :(
I have lost a few deals as a buyer to this exact situation. Unfortunately in the SME space “advisor” is code for accountant or friend who is a lawyer … both wildly unqualified to guide a seller through the process without exacerbating fear and ego. I’ve vowed not to ever offer a terms sheet without an experienced sell side advisor being appointed first
The gaming room of a pub, I can smell it from here!
Sounds like poor preparation, poor advice, poor expectation management on the seller / broker side.... but as buyers we live in eternal hope that we are colour blind and maybe all those red flags are just a deeper shade of green 😊
Thanks for sharing!
Meeting in the gaming room of a pub is diabolical haha
In SME world, this experience is unfortunately more common than it should be. SME transactions would benefit from an approach by stakeholders and advisors that seeks to understand, build rapport and collaborate. Then a deal approach, structure and price that will optimise the objectives and concerns of each party will become more obvious. SME owners and advisors would benefit using a Venn approach, rather than a zero sum game approach.
CEO/ Founder Peiso | President AWCC
3dSuggests deal wasnt closed, to state the obvious, but more importantly, not all of their concerns were addressed before progressing.