A business sale transaction may fail for a variety of reasons. The following common transaction pitfalls underscore how important pre-transaction planning is in order to ensure a smooth transaction process and a successful outcome.

1. Lack of internal resources to adequately prepare for the transaction

  • Develop a formal pre-transaction planning checklist that outlines important steps you and your management team will need to take to prepare your business for sale
  • Organize an internal “deal team" for the transaction that includes key management, and ensure that everyone on the deal team understands their role in the process and has sufficient coverage as needed for their day-to-day responsibilities

2. Loss of employees who are key to the transaction process and/or key to ongoing business operations

  • Identify employees who are critical to the transaction process or your day-to-day business operations, motivate these employees to stay in the business during and after the transaction (e.g., with formal employment agreements, retention bonuses, equity participation), and develop a formal succession plan you can use in the event that they leave

3. Managing the sale process distracts your employees from running the business and leads you to consider calling off the deal to prevent further damage

  • Prior to commencing the sale process, work with your advisors to develop a detailed, step-by-step transaction timeline, establish ground rules regarding the roles and responsibilities of each internal deal-team member, and create a schedule of periodic update calls with key team members and advisors

4. You begin to have second thoughts and wonder if you should not sell your business after all

  • Work with your advisors early on to identify and evaluate the key macroeconomic, business-specific, financial, family and personal factors you should consider when deciding whether or not to sell your business

5. “Red flags" or last-minute surprises during due diligence cause the buyer to walk away from the deal (for example, environmental liabilities, unprotected intellectual property or unresolved legal proceedings)

  • Work with your internal management team to identify any potential red flags in your business long before the sale process begins and ensure that for each red flag, you either have eliminated or reduced the impact, or have a good explanation for why it exists

6.You are unable to come to agreement with the buyer on key terms in the transaction agreement (e.g., purchase price adjustments, covenants, indemnification)

  • Prior to negotiating the purchase agreement, work with legal counsel to familiarize yourself with the key business and legal points in a typical private business purchase agreement so that during the negotiation you have a better understanding of which negotiating points are important to you versus which points you may be willing to concede

7. Buyer is unable to secure sufficient debt financing to fund the acquisition

  • Consider the strength of the debt markets and the availability of financing before you embark on a sale process
  • Work with your legal counsel to ensure there are sufficient legal protections in the transaction agreement in the event that the buyer's financing falls through

8. You and the buyer are unable to agree on a sale price, or the buyer believes your financial projections are inaccurate or indefensible

  • Work with your financial advisor to understand how much you would need to sell your business for in order to achieve your long-term personal financial goals
  • Ensure that you provide the buyer with at least three to five years of historical audited financial statements and that you have developed three to five years of financial projections that are supported by detailed financial assumptions you can defend with confidence

9. The transaction process drags out too long and the transaction dies as a result of “deal fatigue" or loss of deal momentum

  • Ensure that you and your advisors develop and implement an organized, formal sales process with key dates and milestones
  • When assembling your deal team, choose an investment bank and legal counsel with significant experience managing a sale process and are adept at utilizing tactics and negotiating strategies that help to maintain deal momentum

10. You are surprised by the tax impact of the transaction or the future tax consequences that the transaction will have on your lifestyle and legacy

  • Work with your financial advisor early on to implement wealth transfer and estate planning strategies to mitigate the potential tax impact of the transaction
  • Work with your business advisors (CPA, law firm, investment bank) to develop a tax-efficient transaction structure
  • This white paper is the property of BNY Mellon and the information contained herein is confidential. This white paper, either in whole or in part, must not be reproduced or disclosed to others or used for purposes other than that for which it has been supplied without the prior written permission of BNY Mellon. This material is provided for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation. The Bank of New York Mellon, Hong Kong branch is an authorized institution within the meaning of the Banking Ordinance (Cap.155 of the Laws of Hong Kong) and a registered institution (CE No. AIG365) under the Securities and Futures Ordinance (Cap.571 of the Laws of Hong Kong) carrying on Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities. The Bank of New York Mellon, DIFC Branch (the “Authorised Firm") is communicating these materials on behalf of The Bank of New York Mellon. The Bank of New York Mellon is a wholly owned subsidiary of The Bank of New York Mellon Corporation. This material is intended for Professional Clients only and no other person should act upon it. The Authorised Firm is regulated by the Dubai Financial Services Authority and is located at Dubai International Financial Centre, The Exchange Building 5 North, Level 6, Room 601, P.O. Box 506723, Dubai, UAE. The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the Federal Reserve and authorised by the Prudential Regulation Authority. The Bank of New York Mellon London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. The Bank of New York Mellon is incorporated with limited liability in the State of New York, USA. Head Office: 225 Liberty Street, New York, NY 10286, USA. In the U.K. a number of the services associated with BNY Mellon Wealth Management's Family Office Services– International are provided through The Bank of New York Mellon, London Branch, 160 Queen Victoria Street, London, EC4V 4LA. The London Branch is registered in England and Wales with FC No. 005522 and #BR000818. Investment management services are offered through BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA, which is registered in England No. 1118580 and is authorised and regulated by the Financial Conduct Authority. Offshore trust and administration services are through BNY Mellon Trust Company (Cayman) Ltd. This document is issued in the U.K. by The Bank of New York Mellon. In the United States the information provided within this document is for use by professional investors. This material is a financial promotion in the UK and EMEA. This material, and the statements contained herein, are not an offer or solicitation to buy or sell any products (including financial products) or services or to participate in any particular strategy mentioned and should not be construed as such. BNY Mellon Fund Services (Ireland) Limited is regulated by the Central Bank of Ireland BNY Mellon Investment Servicing (International) Limited is regulated by the Central Bank of Ireland. BNY Mellon Wealth Management, Advisory Services, Inc. is registered as a portfolio manager and exempt market dealer in each province of Canada, and is registered as an investment fund manager in Ontario, Quebec, and Newfoundland & Labrador. Its principal regulator is the Ontario Securities Commission and is subject to Canadian and provincial laws. BNY Mellon, National Association is not licensed to conduct investment business by the Bermuda Monetary Authority (the “BMA") and the BMA does not accept responsibility for the accuracy or correctness of any of the statements made or advice expressed herein. BNY Mellon is not licensed to conduct investment business by the Bermuda Monetary Authority (the “BMA") and the BMA does not accept any responsibility for the accuracy or correctness of any of the statements made or advice expressed herein. Trademarks and logos belong to their respective owners. BNY Mellon Wealth Management conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation. ©2018 The Bank of New York Mellon Corporation. All rights reserved.