October 23rd, 2014
By Jo Haigh
It’s a curious fact that a company is what is called a ‘legal person’. But when you think about it, a company can do many things that a human being can do, including having a baby! We call that a subsidiary. It can get married – we may call that a merger – and it can even be deemed to have killed someone under the terms of the Corporate Manslaughter Act.
So if a company is a legal person, when that entity is put up for sale the transaction itself becomes a sort of lifecycle.
The arrival of a new baby is normally a period of joy and excitement. Sometimes this arrival comes after a long struggle to conceive, making the moment of life even more special. This feeling of exhilaration is very similar to the one that comes with an initial agreement to sell your business, the so-called heads of terms, and when the transaction to facilitate that deal comes to life.
Of course a new baby is going to change forever the lives of most parents. Sleepless nights are a particular challenge because a lack of sleep is draining and debilitating and can lead to a loss of perspective. While this is unlikely to destroy all the joy of being a new parent, the worry and stress that it brings can certainly taint the enjoyment.
With your heads of terms signed and the due diligence process kicking off, sleepless nights might well be caused by the million-and-one queries from your prospective buyer. Some of these may be unpalatable or unexpected, so much so that the initial thrill you felt only a short time ago starts to wear off.
As the life of your deal takes shape, new issues will arise. With a toddler, you may experience the ‘terrible two’s’ as your little one develops his or her own personality. With your deal, the ‘terrible two’s’ can become ‘terrible times’ as the lawyers – yours and theirs – get in on the act. This period can often feel like a pointless game of pedantry with no winner – except the lawyers themselves – as they lock horns (and escalate their fees), throwing commercial good sense out of the window.
But like the terrible two’s, it will eventually come to an end. Suddenly, the preschool years will also have flown by and your cuddly child – little by little – will evolve into a teenage Vulcan, leaving you wondering where to go to retreat from this alien you are living with.
You’re likely to feel just as alienated if your transaction depends on your buyer securing cash from an external source. Even in good times the funding market is challenging at best, and any additional pressure to find funding is the last thing you need on top of the daily pressure of running your business as well as running the deal. To cap it all, you also need to be on your guard against people who have agendas that are inconsistent with yours, even if you are aware that they don’t necessarily have your best interests at heart.
You need to be aware, too, that just as some young people never grow up into sensible adults, some deals will never actually come to fruition. If things are looking shaky and it seems that your deal is stumbling into oblivion, you need to take the tough decision whether it’s time to invest more time in turning it around or just walk away from it.
Sometimes a deal fails for reasons that are foreseeable; others fall to complete side balls. Taking your eye off the ball for a moment – even when completion is within sight – is very ill advised. A mature deal – just like an adult child – can still need nurturing by its parents. Buyers can be very paranoid and their funders even more so. Confidence is slow to build and very quick to be shattered.
So never assume anything – except that nothing is certain. Don’t spend your cash prize (or even think about doing so) until the ink has dried on the final piece of paper. And be patient: even straightforward deals can take up to a year to complete and the uncertain world we now live in means that surprises are more likely than ever before.
Image via shutterstock.com
Jo Haigh is a partner in FDS Corporate Finance Services, with bases in London, Birmingham and Yorkshire, and a partner in the fds Group, a specialist training and development business. An experienced dealmaker, she is also the author of The Keys to the Boardroom – How to Get There and How to Stay There.