Danger, Will Robinson

What keeps a deal from closing? What makes a deal blow up? I had the opportunity to spend a few hours with a dozen seasoned professionals from the M&A world recently and we compared notes on the warning signs and speed bumps that turn opportunity into disaster and deals into dreck.

What are some of the most powerful deal killers, according to this group of experienced professionals? Here are a few of their favorites:

• Bandwidth Gaps. Sellers underestimate the amount of time/energy/bandwidth needed to both run the business and engineer its sale. Deadlines get missed, balls get dropped, performance falters and a deal that looked solid on the way in quickly deteriorates—along with the target company’s performance.
• Economic Imbalance. No matter what the press release says, there are no mergers of equals. Too often, sellers fail to recognize and adjust to the economic imbalance between their organization and the acquirer. Excessive demands about post-closing prerogatives can convince the most ardent suitor to move on to Plan B.
• Fear of Commitment. There’s a difference between doing the deal and making it work. Frequently, the seller’s team will make it clear they lack commitment to delivering performance/value to the buyer after the deal closes. Nothing cools a buyer’s interest as much as recognition that the deal is a one-night stand.
• Inside Information. The seller ascribes its success to special knowledge of the market or pricing, the type of knowledge that seldom turns out to be real or legal. If the seller’s success depends on secret insights or a unique model, that success is likely to be very shaky.
• False Starts. Both sides race to get a letter of intent in place, without focusing enough on the details to be addressed. Too often, the parties waste money on due diligence for transactions that will never happen.
• Wake-up Calls. The seller who hasn’t planned for life after the sale suddenly wakes up and confronts reality. That blast of recognition is quickly followed by delays, new demands and the deterioration of a transaction process.
• Mid-course Maneuvers. Both parties enter the negotiation without clearly defined process, timelines or responsibilities. Negotiations and deliverables are transmitted by e-mail on an ad hoc basis, making it impossible to keep track of exactly who’s on first.

What did our panel miss here? What other roadblocks lead to failed transactions and, more important, what is the best way to avoid these obstacles?