Sourcing deals, whether a company is seeking a merger, an acquisition, initial or additional investors, partners, suppliers, or more clients, requires discipline, patience, and keen business acumen. In virtually all sectors, there is ample competition, although some spaces are more inundated and thus fierce than others. As a result, some startup founders and inexperienced entrepreneurs are so desperate to build the business that they do not evaluate prospective deals with the rigorous scrutiny they should be applying. There is understandable concern that another good deal may not surface, and thus it is often tempting to jump at the first opportunity that presents itself, especially when it comes to M&A deals. Of course, even the pickiest, most diligent researchers may think they have scored a great deal, but as the process unfolds, it may prove otherwise. In any situation, company leaders must not be afraid to simply walk away. Here are 4 signs that walking away from a deal may be the best idea:
The whole idea of striking a good bargain is that it offers both sides to the transaction a mutually satisfactory arrangement. If a company finds itself negotiating with another party who begins by offering up some outrageous terms, and then even worse, that party persists to offer terms that are simply unreasonable, this is likely a battle that cannot be won. Granted, negotiators often start out the process with offers that are incredibly high or low, depending on the direction things will need to go, but then the ultimate result should be an agreement that lies somewhere in the middle. Unfortunately, the unreasonable terms may not just be financial in nature. For example, prospective purchasers may make demands about how the company must be run going forward or what changes they will require before proceeding. Another important thing to note is that the definition of reasonable is going to vary from one firm to the next and one deal to the next. If the company leaders find themselves feeling incredibly uncomfortable with the negotiation process, it is a good bet that it is not the right fit.
Refusal to Compromise
In many transactions, the deal does not actually fall apart until later in the process. And, in many cases, this eventual crumbling is due more to the stubbornness and refusal to compromise of the parties involved. It is very unlikely for any deal to proceed along without any issues at all, but it is the manner in which those issues are dealt with that will be most telling. Sometimes, the party with less money or power will be forced to acquiesce in every situation, and if that is the case, this should give the leaders pause. The best deals are based on mutual respect and bilateral benefits, so indications that things may go otherwise could be a sign that it is time to pull the plug.
Small Yet Multiple Red Flags
When entrepreneurs are excited about their business, they are often blind, whether consciously or subconsciously, to the red flags that crop up, even when those glaring problems are directly in front of them. Someone on the team has to be practical so that lofty ideals do not cause a company to go full steam ahead into disaster. This means paying attention to some of the small details, as there may be subtle signs that things are bound to go awry. Some folks may be dismissive of seemingly trivial matters, but when there are multiple red flags, then no matter how small each may be, the cumulative effect will undoubtedly prove problematic.
This probably seems like common sense, as people often say that everyone should go with their gut. Unfortunately, when there is a lot of money on the line, people often try to quell that inner voice. However, if there is ever a point in the deal process where something just doesn't feel right, it is always best to go with that gut instinct. After all, it is almost always better to be safe than sorry, especially when there is a significant investment at stake.