One of my vivid memories of a recent deal is a mid-morning call I had with the CFO of a company in the process of a sale. We had been negotiating and providing information for about 3 months, and only had a couple weeks until closing. The CFO of this company had become the information pipeline for the deal and was probably getting close to 200-300 emails a day about the transaction (not to mention her real job as the company’s CFO).
I called to ask about a couple emails that hadn’t received a reply, but before I could even begin, she answered with “I cannot handle all of these calls or emails. I’ll get to it when I get to it. This is ridiculous!” I could hear her taking big breaths, and could feel the frustration in her voice. She was right, the amount of email and phone traffic during a deal, especially this one, was bordering on ridiculous. She’d been in the office since sunrise, knew she’d be pulling (another) 18-hour day, probably hadn’t had breakfast or coffee, and knew that the “end” of the transaction meant one of two things: a new boss and new ownership, or finding a new job.
This is deal fatigue at its finest, and it happens in every deal, to varying degrees, to more than one person. This CFO was so drained, so overwhelmed, and so stressed that she couldn’t manage her workload or her transaction responsibilities. That day I stayed on the phone with her for an hour, talked her through each email, offered to disseminate the information so that she wouldn’t have to, and made a plan to be her main contact point moving forward. At the end of the call she was breathing a little easier, with a better perspective on the path forward toward closing.
The process of buying or selling a business is not for the faint of heart. A buyer or seller can suffer from deal fatigue when a deal timeline has progressed past their initial expectation, when the two sides may be debating hotly contested issues without foreseeable resolution, or when everyone just feels resigned and frustrated.
Ideally, both parties and their advisor teams would come to the table with a fully-educated, collaborative approach, designed to transition the company to its new owners. In reality, the deal process can suffer from any number of issues, ranging from mismatched ideas about timeline or deal structure, advisors who don’t have the necessary expertise, or a disparity in bargaining power among the parties.
At Stock Legal, we’ve made it a point to start our clients (whether a buyer or a seller) off on an educated foot, with a 10,000 foot view of the transaction process from start to finish. We want to manage our clients’ expectations from the start and empower them to begin negotiations with a reasonable understanding of the process and requirements of a transaction.
Deal fatigue starts to creep in when the parties’ expectations don’t match reality and allowing a party’s fatigue to fester can mean that they compromise on negotiations where they otherwise shouldn’t, give concessions for the sake of forcing a speedy timeline, or call off the deal (only to revive it a week later).
Despite the fact that my focus as an attorney is providing legal services in the transaction, such as drafting documents and reviewing diligence, I’ve come to realize that my clients also lean on me to combat their deal fatigue. It’s my job to bolster them when the pressure is too much, and to implement different procedures if they’re overwhelmed by information and requests.
Just like the situation with the exhausted CFO, the due diligence process often causes the kind of exhaustion that can temporarily derail a deal. We always encourage our clients not to take the diligence process personally, but the amount of information being requested is simply overwhelming. Imagine you are selling your house, but instead of taking all of your possessions with you when you move, you’re selling them to the new owner. That new owner wants full information about your house and its contents, so she starts inspecting your home by opening drawers, poking around closets, and examining your basement, your garage, and your kitchen cabinets. Essentially the new owner looks in every corner of your “corporate” house, with a proverbial high-powered flashlight.
That’s close to how due diligence can feel if you’re a business owner who is in the process of selling. The buyer and its advisors will ask detailed questions about your financials, contracts, real estate, intellectual property, and all of your assets. They’ll ask why you made certain historical choices and delve into your relationships with your customers and employees. Even the most resilient seller can experience stress from the sheer amount of information to be shared and the large number of questions to be answered.
In addition, I often counsel my clients to share the burden of the transaction with a few close employees or other management, but to understand that doing so means asking a lot from employees who will likely become “former” employees once the deal is closed. As a result of the confidential nature of transactions and the parties’ desire to keep a transition quiet until the last possible moment, often there’s only one or two individuals who know that a company is being sold. We counsel owners to incentivize and support their key employees through the deal process, and also try to employ organizational processes to make tasks easier. Often funneling tasks through one checklist, or through one person can make a huge difference.
There’s really no substitute for the deal process, and no way to skip through it without experiencing at least minor fatigue or frustration. The good news is that we negotiate transactions for a living, and we haven’t gotten fatigued yet. We’re here to get you ready for the process, manage your expectations, and ease the burden when we can.
The process of selling your company can be intimidating, but it’s easier when you have a trusted advisor by your side. If you’d like to discuss in detail, contact us to learn more.