Why do these same financial sponsors insist on selling their portfolio companies in an M&A process? What can be learned from this inconsistent behavior exhibited by these “professional” business owners?
Avoiding an M&A process and finding an acquisition target outside an auction provides the buyer with greater “input” on the purchase price and deal terms without the specter of competition. When a deal opportunity is outside an M&A process, the buyer can often assume that once the acquisition discussion reaches a certain point, “seller inertia” will set in and help the buyer drive the principal deal terms in their direction. Seller inertia occurs when a business owner becomes enamored with the concept of exiting the business and is reluctant to withdraw from deal discussions even when the price is reduced and/or deal terms become more favorable to the buyer.
Terrel Bressler is a Managing Director at Prairie Capital Advisors, Inc. He can be contacted at 312.348.1323 or by email: firstname.lastname@example.org.