I've heard a few stories about the difficulties of completing a transaction when there are multiple equity owners of the target company. One gets cold feet a few days or weeks before closing and the searcher is left with a lot of diligence expenses and no deal.
Has anyone used a structure where they get individual equity holders to sign a contract stating that they'd split broken deal costs in the case that they don't want to sell? Or how to searchers manage a multiple owner sale? It seems to me that the risk of a broken deal rises exponentially as there are more parties involved.
Multiple owners & broken deal costs
by a searcher from Carnegie Mellon University - Tepper School of Business
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Your concerns are valid. Explain to owners that you are about to spend a good amount of money working in good faith to close a transaction and have reservations negotiating with multiple decision makers that could hold up a deal.
This is a two way street. If the representations during diligence prove out using a reputable QofE provider and you whiff on securing financing that’s on you. If you show up to the table with a commitment letter and executable purchase agreement and they walk that’s on them.
The more you can negotiate at the LOI stage the less surprises you will have leading up to closing.