Quick reads
Depending upon whether you are in the search process or whether you’ve progressed beyond that stage, there are various red flags which will give an indication that the business in question might not be the one to progress. For example:
- Sellers won’t release the Info Memorandum (IM)
- Taking too long to get relevant financial information
- High staff turnover
- Sellers can’t identify future development potential
- Owners can’t convey “uniqueness” or “what is special”
- Too many potential buyers in the frame
- Unusual “add backs” listed in the IM document
- Sellers are looking for an inflated price
- Sellers are looking for over 75% of the asking price at completion
- Sellers indicate that they are looking for more than has been agreed in the Heads
- Gap between the buyer’s valuation and the seller’s price expectations
- Issues coming out of a due diligence which are troubling to funders
- Business just isn’t sale ready
- The owners don’t wish to accept deferred consideration
There are numerous reasons you might wish to pull back from exploring a specific business. The key thing to remember is that, once you start to engage third party professionals such as lawyers, corporate financiers, accountants and due diligence experts, you will be paying for their time, even if you drop out of the transaction. Therefore, it is vital to do the maximum amount of research on a target business before engaging and committing to pay any third parties.