Tip #14 from the private equity trenches: Beware of the Seller Death Vortex.
Tips from my time representing big private equity clients that are just as applicable to independent sponsors and searchers.
There is a phenomenon that I see in so many deals I started naming it the:
Seller Death Vortex.
This happens in a deal before the purchase agreement is signed or closing occurs when sellers will suddenly start getting cold-feet. A seller starts to think they could have negotiated a better deal and this manifests in Sellers trying to renegotiate deal points or becoming difficult to deal with.
There is also a psychological aspect that Seller will be entering a new and uncertain phase in their life. This can be difficult.
If not anticipated and addressed this attitude change can be very surprising to a Buyer.
Here are some ways to handle the Seller Death Vortex.
Know that this is normal and expect it to happen. Mentally brace yourself.
Stay in close contact with the Seller at this stage. Frequent calls, texts, and find opportunities to be in touch and remind the Seller of why this is a good deal and those values that drove them to do the deal (see Tip # 11: Don’t Overlook the Seller’s Psychological State).
Make sure that the Seller’s M&A Advisor and others in Seller’s support network are engaged in keeping the Seller on track. Don’t be afraid to reach out to Seller’s M&A Advisor.
If Seller goes silent, be very afraid. Don’t just assume they are busy, 95% they are thinking about walking from the deal. Silence is never good.
Discuss this openly with the Seller early on so that Seller knows these feelings are normal.
Sometimes, when all else fails, you may have to sweeten the deal. At times, there is no amount of psychological cajoling that will get the Seller back to the table. Be prepared to offer a small concession to make Seller feel they are getting a good deal.
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