When your software M&A transaction goes sideways

Under the tight scrutiny of a buyers due diligence team, the likelihood of a software merger falling apart between LOI and close is higher than ever. Gone are the haphazard bubble years when buyers acquired companies and then tidied up the details after the deal closed. In today's tougher environment, you need to actively prepare for and closely manage the due diligence process. Even with the closest attention to details, though, events can still occur that will cause a deal to fall apart. You need to make sure that events that may be fatal to the deal are not also fatal to your business. That means that you don't place yourself in a position where getting a deal done is critical to the survival of the business. If that is the case, and a deal unravels, you will find few options but to significantly compromise value and structure to get a deal done at any cost. Under more favorable conditions where the business is not dependent on the deal for survival, you have more options when the deal turns south.

First, since you have focused on keeping the business on an even keel during the software M&A process, you have not lost momentum, nor have you foregone any business opportunities. You still have the option of going back to business as usual, as you never banked your survival on the deal getting done. Working with an experienced software merger intermediary during the acquisition process allows you to focus on your business while the intermediary negotiates on your behalf and keeps you from distraction.

Second, you have not burned any bridges with other potential acquirers that you may have had discussions with earlier. You will have multiple potential suitors if you worked with a professional software M&A firm that positioned you before the right potential buyers in a well orchestrated approach to the market. If there is no way to recover the current deal, there is always a fallback to other interested parties.

A deal is rarely dead without some opportunity for a rescue operation, and decisive action is the byword here. If the buyer is backing away because of some flaw discovered in due diligence, you need to respond quickly and openly to mend the wound. If the event is more global, such as a catastrophic economic downturn, it may be more difficult to address, but the response and assessment of options needs to be compelling and decisive. If on a rescue mission, promptly seek a face to face meeting with the buyer. After gaining an understanding of the perceived issues or problems, you can act to remedy or at least put a more positive spin on shortcomings. Generally, buyers get committed to deals just as sellers do, and are equally hesitant to toss out a deal that may represent months of work, and for which there may few suitable alternatives.

Bottom line: be well prepared before you start the process of finding an M&A partner. If the deal gets fouled, get face to face with the potential buyer immediately, and remember, never stop selling. Now is the time to reinforce in the mind of the buyer why this deal is strategic and originally made sense, and why more than ever there remains strong logic to continue to move forward to a successful software M&A event.

Posted by , Chairman Emeritus on 22 January 2010
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