During my years representing tens of private equity transactions, I’ve learned tips and tricks that can help searchers.
Lesson #13 from the private equity trenches: Be Very Wary of Multiple Sellers and Take Evasive Maneuvers.
I have seen lots of deals die for lots of reasons.
I was asked if there is one thing kill the most deals.
The answer is, multiple sellers.
Whenever there is more than one seller, the risk of the deal dying skyrockets. The more sellers the higher the risk.
Don’t let this deter you from pursuing a good deal, but identify this risk factor early and try to mitigate it. Here are some ways:
At the beginning of the deal, determine each seller’s reason for selling. Ask each sellers if they are excited to sell and what is motivating them. If you find out that Jim is motivated by cash now, while Bob wants a steady cash flow for the next ten tears, and Mary wants a piece of the upside, you can construct a better offer.
Speak to each seller. If there is an absentee seller, ask to speak to them. If the response is, “don’t worry about Jimmy, he’s on a yacht, he’ll come around”, know that Jimmy may not come around. Jimmy is going to be a major issue and may cost you a lot of time and money. You’ll want to get in a room with Jimmy as early as possible.
Have each seller sign the LOI. Seems obvious, but I’ve seen LOIs signed by the Target Company or just one seller, as a representative. Make sure they all sign.
Move quickly. You will be herding cats.
Don’t let multiple sellers deter you, but identify this as a major risk factor and plan your mitigation strategy.
complexity with the potential for more emotions. But this post provides good advice on how to address it.