We have all been there. Deals that challenge all parties and seem to have no chance of getting over the finish line. And sometimes, they don’t! By highlighting the experiences of M&A advisors, members will learn key factors to success (and failure) in the M&A world.

Our first story is from Milt Anderson, CBI, owner of Sunbelt Quad Cities. Milt has led a team of licensed professional business brokers as the leader in the business brokerage/merger and acquisition field in the Quad City Iowa and Illinois region since 2003.

Industry: Restaurant with real estate 

Price/Terms: $1,450,000 with SBA financing 

What Happened 

Sunbelt Quad Cities sold a 200-seat restaurant with real estate for $1,450,000 to a buyer who applied for and was approved for SBA financing.  The lawyers collaborated and agreed to the definitive agreements. The buyer applied for and received all required licenses, permits, and vendor credit approval. The business and real estate were insured by the buyer. Real estate and business valuations had been done as well as the environmental Phase 1.  The buyer created a new entity and EI numberThe 60 or so employees were advised and met the new owner. The closing was scheduled for 9 a.m. Friday 

On Thursday afternoon at 4 p.m., the lender called and said that the deal was off. They were pulling out of the financing. Apparently, the buyer already had an SBA loan for $5,000,000 that he had not disclosed as an SBA loan on his paperwork. When the lender notified the SBA of the new loan – as was their practice only just prior to closing! – the SBA crossreferenced the SSN of the buyer. The maximum the SBA will guarantee is $5,000,000  so the SBA guarantee for financing was declined

The buyer withdrew as they did not have access to other sources and forfeited their $20,000 earnest moneyThe seller spent more on attorney fees than their $10,000 half of the earnest money. The buyer likely lost $40,000 – $50,000 on this because of the loan fees, insurance, new entity formation, permits, licenses, legal fees, and more. The business is doing okay in spite of COVID and is still for sale but we all know how marketable restaurants are right now. 

The Takeaway 

The mistake was made by the SBA lender but they did not suffer as they get deal preparation fees up front. The bank should have discussed the other loans on the buyer’s balance sheet in more detail. That said, we as advisors can also vet this issue upfront when talking with potential buyers. 

We need your stories too! 

So – successful deal or failed deal – we need your story.

All you need to do is complete the Deal From Hell form (without any client identifying information) and email it to Communications Committee Chair Kathlene Thiel. We will set up a call for background and issue a final version for your approval.