888-983-1617 [email protected]

3 Signs an M&A Deal Is in Trouble

Read the article in CFO.

Spotting signs of trouble early is critical for CFOs to prevent a deal from derailing.

Not every CFO will experience M&A firsthand during their career. But those who do typically find that their existing skillset makes them a crucial asset during the transaction process.

CFOs’ ability to understand financial data on a deeper level than their colleagues gives them a unique vantage point. As their executive team’s main source of objective truth, CFOs can keep internal discussions grounded in reality by carefully evaluating the strengths and weaknesses of potential deals.

M&A deals promise strategic business growth and value creation, but they rarely come easily. Over my career as an investment banker, I’ve seen enough deals fall apart that I’ve developed an intuition about which ones seem solid — and which ones seem less likely to go the distance.

CFOs who learn to recognize the typical warning signs of troubled deals can help address issues before they threaten the success of a potential transaction. Here are three potential symptoms of trouble that CFOs should be aware of during the M&A process.


1. A Change From Established Norms

CFOs and other deal team members should always keep a keen eye for any changes that might indicate doubt from the other side. One of these changes is an increased presence from stakeholders, such as a board of directors, who have previously kept their distance from the deal-making process.

The question, though, is whether the other party is signaling a loss of faith in the deal or something else. Yes, perhaps something better has come along. Alternatively, senior management might be reconsidering their original assumptions about the deal or even contemplating a change to their deal team.

It could also simply be a negotiation tactic. Determining the proper response might require the collective intellect of the CFO and other experienced members of the deal team. Together, take a mile-high look at the core facts of the deal and put yourself in the other party’s place. Decide whether there’s a sensible reason for them to back out, and if so, make a plan for addressing that situation should it arise. However, sometimes there’s smoke but no fire. When that happens, the best response may be to do nothing.


2. Slow or Incomplete Responses

During due diligence, any delays or difficulties in obtaining timely and accurate information from the other party should raise a red flag.

My firm experienced one particularly glaring example of this behavior while doing due diligence for a sell-side client that had easily reached an initial agreement with a buyer. We had asked our client to send their tax returns for us to review, and the radio silence that followed our request didn’t initially raise any suspicions on our end. But after making several repeated attempts to get the necessary filings, we learned the real reason for the delay — the returns didn’t exist.

Generally speaking, if the counterparty fails to provide essential financial data or suddenly becomes evasive in addressing key questions, it may indicate underlying issues.
Frank Williamson

Founder, Oaklyn Consulting

During a period of financial distress, this business simply hadn’t been paying its federal taxes despite continuing to collect tax money from customers. In the end, we did close this deal — after renegotiations — as the buyer saw benefits to the purchase that offset the apparent complications.

Keep in mind, every deal is different, and specific questions may take a while to answer for perfectly plausible reasons. But, generally speaking, if the counterparty fails to provide essential financial data or suddenly becomes evasive in addressing key questions, it may indicate underlying issues.


3. Signs of Inexperience or Disorganization

To work with people on the other side who are experts in the deal-making process is refreshing. Well-run meetings, where there’s a clear goal of reaching a consensus on creating and dividing value, are often the key to successful deals.

Conversely, when key meeting roles are handled by inexperienced individuals, the process becomes slow and arduous. It might raise questions about the other party’s commitment and capability to drive the deal forward. CFOs who have been through M&A before should pay close attention to whether meetings are well-organized, obstacles are addressed promptly, and decision-making processes are efficient and effective. If they’re not, consider the reasons why.

Along the same lines, as you gain insight into how the other party conducts business, you might notice signs that they’re not as organized as you assumed. That becomes a problem if the counterparty supplies inaccurate metrics, which can result from a lack of attention to bookkeeping or even financial distress. A sharp-eyed CFO will carefully evaluate the reliability of the other party’s financial information and address any concerns to ensure a solid foundation for the deal. If one side’s metrics are egregiously wrong, fixing that damage and continuing with a deal can be very hard.

The more times you go through M&A as a CFO, the better you get at spotting warning signs that can impact the success of transactions. While CFOs should stay alert for any potential complications, they should also be doing their part to establish effective channels of communication with the counterparty and ensure transparency throughout the deal process.

Maintaining the momentum of a transaction requires attention from several parties, so make sure you’re not the weak link. Successful collaboration with other stakeholders is critical for overcoming hurdles and unlocking the full value and potential of the respective businesses.

Frank Williamson is the founder of Oaklyn Consulting, an investment banking firm for small- and medium-sized companies under private ownership.

Oaklyn Consulting Congratulates Finite Reimaging on Acquisition by CAMP Construction Services

Oaklyn Consulting helped AMP Construction Services acquire Finite Reimaging. Learn it all here.

Help Me Develop a Sellable Asset

Ask Us Anything Dear Oaklyn Consulting, I don’t know if it’s the economy or the time of year, but it feels like every time I turn around, there is another M&A firm calling to see if I am in the market to sell my small business. I know that this is something that I...

Consulting vs. Investment Banking: Which Approach Suits Your Business Needs?

Understand the main differences between investment banking and consulting. Get the best services for your business and unlock new opportunities.

Help Me With Selling a Business

Ask Us Anything Dear Oaklyn Consulting, I have a friend who is selling their existing business, and they want more than any buyer is willing to pay. Should they take the best terms they can get, regardless of their “valuation,” and ride off into the sunset or wait...

How to Assess Non-Profit Financial Performance: A Step-By-Step Guide

Gauge your organization’s financial health effectively. See how to assess non-profit financial performance and unlock more opportunities to accomplish your mission.

Help Me With My Seasonal Business

Ask Us Anything Dear Oaklyn Consulting, I operate a seasonal business that relies heavily on tourism and favorable weather conditions. When the weather cooperates, our company is exceptionally profitable. However, the weather hasn't been on our side for the past two...

Help With My Family Business

Ask Us Anything Dear Oaklyn Consulting, I've been running our family's small business and have been for the last 5 years. While we are an established brand who has been successful in business for over 20 years, this year is hard. Sales aren’t growing as projected....

How to Spot Warning Signs that a Deal Is in Danger

Read the article in The Middle Market.Bringing an M&A deal across the finish line can be a long and perilous road. No matter how certain a transaction might initially seem, there’s always the possibility that one party can abruptly change its plans and drop out —...

What to Do When It’s Hard to Sell Your Business (Niche or Not)

Read the article in The American Genius.There are many hurdles that can arrive when you are trying to sell your business – here are some tips to meet yours and your buyer’s needs. Having a profitable business is no guarantee that you’ll one day be able to easily sell...

4 Tips for Pitching Investors in Today’s Economy

Read the article in CFO.Any company that intends to grow past a certain point eventually reaches the familiar milestone of pitching to private capital sources in hopes of securing additional funding. Those businesses that tend to be most successful are the ones that...