Written by: FP Transitions
Wealth management firms seeking rapid growth are increasingly turning to mergers and acquisitions (“M&A”) as a solution. As such, we are seeing a lot of M&A activity involving firms with multiple owners, staff, and even real property. Many practices are looking to be acquired or merge with a larger business to spur growth, to benefit from economies of scale, to offload compliance and day-to-day operations, to increase bandwidth and offerings to clients, or to assist with the retirement of one or more senior owners/partners, among other reasons. Given these complicating factors, negotiating and documenting these M&A transactions can often be more time consuming than the parties expect, which creates the perfect incubator for deal fatigue.
Deal fatigue is a condition during negotiations when one or more of the parties begins to feel frustrated, hopeless, irritated, or even angry about the pace of the transaction. Deal fatigue–at some level–is almost impossible to avoid in a complex transaction, but if caught early and prepared for it can almost always be successfully managed. If not, deal fatigue is one of the surest ways to destroy a transaction. The key is to know the causes and signs of deal fatigue as well as the tools to minimize its negative impact.
Causes of Deal Fatigue
There are of course many causes of deal fatigue, but some of the most common ones that we routinely see are:
Deal fatigue is typically correlated with the time it takes to complete an M&A transaction. Typical transactions take about three months. Parties can get frustrated if they feel like they’re being rushed, while others may feel frustrated if the process starts to feel too drawn out. Striking a balance between the two is important.
Once the Letter of Intent (LOI) is signed, the negotiation over the agreed to deal terms needs to cease. Preparation of legal documents and agreements is NOT the time take a second bite at established deal terms. Doing so can cause strain and distrust.
Lack of Process
It is critical that the M&A process be defined by the dealmakers early and that a projected schedule be put in place to keep things on track and in anticipation of common hurdles. Again, three months is typical.
Deal fatigue can be a byproduct of insufficient or ineffective communications between the parties. Communication between the parties of an M&A transaction is crucial; set recurring check-in conference calls.
Lack of Transparency
Due diligence is the parties’ opportunity to learn about each other to their mutual benefit. Be transparent throughout this process and during your check-ins.
Signs of Deal Fatigue
Knowing what to look for in terms of deal fatigue is important as an M&A transaction progresses. If caught and mitigated early, deal fatigue can be managed. The most obvious sign of deal fatigue is frustration from one or both of the parties. While some frustration is to be expected, especially when negotiating salient deal points, that anxiety should be short lived and resolved naturally. Deal fatigue is likely imminent if the frustration continues.
A lack of commitment to the completion of the transaction is also an important sign of deal fatigue that should not be ignored. When a buyer or seller begins to drag their feet or suddenly become incommunicative it’s usually indicative that they’re second guessing the transaction. Other indicators of deal fatigue include, but are certainly not limited to, parties being distracted, feeling helpless, irrational decision making, impatience to reach the finish line, and distrust of the process and the other party. Know the signs of deal fatigue and keep a watchful eye so you can prevent a small frustration or uncertainty from escalating and destroying the deal.
Minimizing Deal Fatigue
Deal fatigue doesn’t have to be a deal killer if caught early and properly managed. There are many techniques that can be used to prevent or manage deal fatigue (e.g., clearly defining and assigning tasks, setting attainable/realistic goals and timelines, having dedicated party project managers, having weekly status meetings), but many of these techniques, if not employed properly and at the right time, can actually exacerbate the problem. Managing a deal can be complex and it is best to employ an experienced, non-advocate M&A facilitator to provide you with expert guidance through the M&A process.
Employing a skilled M&A facilitator helps keep the parties focused on the tasks necessary to complete the transaction and provides the parties with an objective third party through the process. While parties may attempt to navigate an M&A transaction alone, a skilled M&A facilitator will prove their worth when hurdles arise, which happen in almost every transaction. An experienced M&A facilitator has likely encountered similar hurdles and can make quick work of the situation to get the parties back on track. “Expect the unexpected” is a recurring theme in M&A, but with the right M&A facilitator the unexpected is easily navigable.
Experienced, Non-Advocate Support
Unlike some other M&A facilitator services, at FP transitions, we not only provide you with industry specific expertise throughout the entire transaction process, including advising on pre- and post-sale due diligence, common tax issues, post-sale employment, restrictive covenants, and preparation of the agreements necessary to consummate the transaction. Our unique approach provides non-advocacy support for both buyer and seller, leveraging our integrated team of M&A, legal, valuation, and business analytic experts to ensure a successful transaction and transition of clients.