Still Waiting for that Smooth and Easy Deal

I’ve heard of acquisitions that have but a few minor issues and close in record time.  I’m assuming I’ll get one of these at some time in my career, but so far it hasn’t happened.  A deal I’m working on right now was a great candidate, with extremely smooth sailing all the way through receiving ten offers.  Too smooth.

 

Our client is a great company with excellent management in a growing market and with growing revenues. Except perhaps their remote location, there isn’t much not to like about this company.  We at the Woodbridge Group created the book and video, did the strategic market analysis and proceeded to market the company.  We engaged with over 60 interested buyers and after a period of information exchange from all sides, we ended up with 10 offers – a very healthy response. 

 

The client selected three of the highest offers with the best fit and invited them for meetings at their location.  We were settled in for a few days for the meetings with buyers, and the seller commented about the fact that I had warned him previously about bracing for some ups and downs in the process.  He laughed and said he hadn’t yet encountered the 'downs' he was expecting.   Little did he know that in less than 24 hours we would be huddled in his office, trying to figure out where hundreds of thousands of dollars of revenue had gone.

 

It wasn’t really gone, it was never there to begin with.  We had discovered an accounting error, and it was a big one.  It was extremely frustrating, because we knew there was a revenue recognition (when to recognize revenue as earned) issue at the start.  So when the client first engaged us we had recommended that he get a CPA to examine the books and produce compiled financial statements.  No one wanted to the stop the process at the beginning like that, but we did and a CPA came in and did their work.  But the CPA did a rush job and ended up making a serious error that no one caught at the time.

 

Now, with 10 initial offers in hand, and meetings just ended that typically lead to final offers, the CEO/Owner was beside himself.  Imagine this: the most important time in your company’s history, and you discover you have no idea what your revenue is and what your earnings are.  Not exactly smooth sailing.   Four people (the CEO, his finance person, myself and Graeme Plant, also of Woodbridge) worked on almost nothing else for over a week except getting back on track.  Thousands of contracts and invoices were reviewed and compiled, and a 5 MB spreadsheet was passed around and around as we all zeroed in on a corrected revenue and earnings number. 

 

We had immediately disclosed the situation to the buyers and kept them up to date on the progress.  Buyers are typically quite risk averse and we were of course a little worried about having them walk away.  But one buyer said it best when he said, “Hey, what is a small business acquisition without an accounting glitch?”  Thanks, buyers.  But of course none of the buyers were going to take another step without knowing what the real numbers were.

 

The other side of the equation was also difficult.  The value of business went down practically overnight by well over a million dollars.  Of course, that value was never there to begin with, but the expectations were pretty high for many months.  Imagine going home to your spouse and saying, “Uh honey, you know those 10 offers we had?  Well, things have changed a bit…”  Thankfully, the owners are well grounded, didn’t panic, and were more concerned about finding out what the actual numbers were than dwelling on the drop in value.  Thanks, seller.

 

The deal is now back on track and there is a big sigh of relief from sellers, buyers and dealmakers.   Will it be smooth sailing the rest of the way?  I’m not a very superstitious man, but there is no way I’m even going to venture a guess on that.

 

Wish to know more about buying and selling a business?  Visit www.sellbusinessguide.com, a compendium of my blog articles and deal stories.