Avoiding the Deal Close slow march of death...

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October 10, 2023

by a searcher from Brigham Young University in Kahului, HI, USA

Aloha,

Curious about tactics or terms that help avoid letting deals drag out into perpetuity during due diligence?

Our LOI's generally have some dates and "outs" related to those dates, but it has been challenging to create dates or deliverables that help push a deal towards close. Any best practices?

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Reply by a searcher
from Princeton University in Annandale, Clinton Township, NJ, USA
Lot's of good comments above, but here is my two cents. From the buyer perspective in the SMB world, the hitch is always getting information promptly from the seller. Now that I'm running a small business, I can understand how challenging it can be to pull resources away from carrying out the day-to-day work that needs to be done to pull and organize a bunch of information. The best remedy here is for the buyer to prepare a clear and comprehensive list of everything they will need to push post LOI due diligence to the closing table, so the seller can see everything laid out clearly. Much easier for them to pull things in batches than it is to provide responses to one-off requests, that seem never ending.

It will always be a challenge to "speed up" the seller's responses. The only effective an honest way I've found to keep deals on track in the past is to make it very clear that once and LOI is signed, you will be spending significant resources (time and money) to complete legal and financial due diligence. So if at any point the Seller gives the impression that they are not equally invested in pushing towards a closing, I'll have no choice but to pull the plug on the deal since I couldn't invest those limited resources unless there was a clear path to closing a deal. Might sound like a threat, but it is the honest truth--try to set that expectation clearly before signing an LOI.

The ^redacted‌ to address your question, I think you can make the same point in reverse. You are busy running a business and the sales process takes time and focus away from that. If you are working with a serious buyer, they should be SPRINTING once an LOI is signed to get DD completed. This not only saves both sides time and money, but it minimizes the window where your Company's owner isn't 100% focused on the day-to-day of running the business. Again, setting clear expectations prior to LOI close is key. And making sure both sides have legal, accounting, and tax advisors hired (basically confirming that both sides are ready to invest their money) once the LOI signed is the best way to keep timeline on track from LOI to close.
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Reply by an intermediary
from University of Memphis in 5000 Linbar Dr, Nashville, TN 37211, USA
The consensus is establishing clear responsibility on both sides for the diligence issues, then establishing a weekly review between the key parties and doing your best to hold the sellers accountable for delays is essential. Additionally, your lenders may request the same information from a seller as it passes though reviewers, you have the responsibility to minimize the pain & frustration this can cause the seller, so organize your diligence files in the beginning so you can quickly find information that has been previously supplied to the lender. This is most frustrating for you as the buyer but can seriously impact the transaction if the buyer consistently requests information the seller has already supplied.
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