Cold Feet at the Finish Line: How an M&A Advisor Can Save a Near-Dead Deal

As an M&A advisor, one of the worst things that can happen to you is to do an excellent job for a seller on an assignment and produce a great offer on great terms from a high-quality buyer, and then, for some reason, the seller decides to back out at the last minute. They may well have some reason for backing out, but most likely, they just got cold feet. The success fee that you are due after months of hard work suddenly begins to disappear. Perhaps you have some contractual protection for part of it, but most likely, you don’t.

This puts an M&A advisor in a difficult position. The advisor has an ethical responsibility to put their client’s interests first. That is very hard to do when the fruit of your labor is suddenly at risk. Objectively evaluating exactly what is in a client’s best interests may also be a real challenge.

In 2024, we ran into exactly this situation. Our client was a detailed planner who had carefully evaluated what his “number” was – the enterprise value that would meet the requirements of his detailed financial plan. Before signing the engagement agreement, he made it clear to us that if we couldn’t deliver that number, he would not proceed with the deal.

The engagement went very well and produced multiple attractive offers, ultimately producing an offer that was in the neighborhood of twice the client’s “number.” The first sign of trouble ahead was that negotiating the letter of intent proved to be challenging. He wanted to negotiate some things that sellers rarely do. It took a while and raised some eyebrows, but we got the LOI signed.

Due diligence proceeded smoothly, with few issues arising, particularly in the quality of earnings and other due diligence areas. Negotiating the definitive agreement was challenging for similar reasons to the Letter of Intent (LOI). It was a fairly excruciating process with intense negotiations, and several times we thought it might not happen. As we were finalizing the documents, the client confided in me that he didn’t know he could do it. He didn’t have a reason, but he couldn’t bring himself to do it. The buyer had agreed to almost all his demands, and he liked the buyer, but he said he couldn’t do it. He said he might be able to do it in a couple of years.

I was shocked at this development. In my experience, if a client gets cold feet at this point, a good night’s sleep can be beneficial. Not this time. I doubt he got a good night’s sleep for the next month.

In addition to the fees at risk, I was worried about my reputation. The buyer had probably spent $300,000 or more on legal fees and due diligence. They were not going to be happy. They are an essential buyer in our niche, and I didn’t want to make an enemy of them. I also knew that, notwithstanding nondisclosure agreements, this sort of thing gets around.

We immediately began to try to help the seller objectively address the situation. We talked for hours, but I also put a lot of my thoughts to him in the form of a letter (several letters actually). I put them in writing so that he could re-read and reflect on the issues I was raising. One of the most important considerations is that he couldn’t realistically expect to receive the same offer if he waited another couple of years. Candidly, one of the main reasons that I wrote letters was that I hoped that he would print them out at home, and they would be there for him to review with his wife.

Selling a business is often the culmination of a lifetime of hard work, dedication, and personal sacrifice. It’s often the most challenging decision the owner will ever make, both financially and emotionally. So, it’s not uncommon for business owners, even when a deal is ready to close, to experience a sudden surge of “second thoughts”, “seller’s remorse,” or “cold feet.” This emotional phenomenon, if not expertly managed, can derail months of negotiations and significant financial opportunity. This is precisely where a skilled M&A advisor demonstrates their actual value.

When a business owner is close to closing a deal and becomes hesitant to proceed, an M&A advisor can step in as a critical, objective guide, providing far more than just transaction expertise.

1. Listening and Re-Framing Specific Concerns

For many owners, their business is a large part of how they define themselves – their identity, their legacy, their daily routine. The thought of walking away can be extremely unsettling. An M&A advisor should understand the deep emotional connection that an owner has to their business.

• Active Listening and Empathy: The advisor provides a safe space for the owner to articulate their anxieties, fears, and regrets. They listen without judgment, validating the complex emotions involved in such a significant life transition. This empathy can be crucial in helping the owner process their feelings and gain clarity.
• Reconnecting with Initial Motivations: Often, cold feet stem from losing sight of the original reasons for selling. The advisor can help the owner revisit their initial objectives – whether it was retirement, pursuing new ventures, financial security, or ensuring the business’s long-term growth under new leadership. Reminding them of these core motivations can restore their resolve to complete the transaction.
• Addressing Underlying Concerns: Is it fear of the unknown? Concerns about how employees will be handled? Worries about the buyer’s overall strategy for transitioning the business. An advisor can listen and ask questions to help uncover what is causing the cold feet, helping identify potential solutions.

2. Addressing Perceived Issues and Problem Solving

Once the emotional landscape is understood, the M&A advisor can shift to practical, strategic interventions.

• Reevaluating the Deal: Sometimes, second thoughts arise because a specific element of the deal no longer feels right. An advisor can analyze the current offer against market benchmarks and the owner’s evolving priorities. They can identify potential areas for renegotiation that might alleviate the owner’s concerns without jeopardizing the entire deal. This could involve adjustments to the purchase price, payment terms, transition issues, or even guarantees for employee retention.
• Proposing Solutions: If the owner desires to maintain some connection or influence, an advisor can explore alternative deal structures to achieve this goal. This might include:
  • Partial Sale: Selling a majority stake while retaining a minority interest, allowing the owner to benefit from future growth and potentially a “second bite of the apple.”
  • Earn-outs: Tying a portion of the purchase price to the business’s future performance, giving the seller a vested interest in its continued success.
  • Consulting Agreements: Formalizing a role for the seller post-acquisition, providing income and a structured transition away from daily operations.
• Communicating with the Buyer: Approaching a buyer about a seller’s cold feet can be incredibly delicate. The M&A advisor acts as an intermediary, communicating the seller’s concerns professionally and strategically, without appearing indecisive or manipulative. They can frame the seller’s problems in a way that resonates with the buyer’s objectives, seeking win-win solutions.

3. Providing an Objective Evaluation

Business owners are often deeply entrenched in their operations, making it difficult to maintain objectivity. An M&A advisor offers a crucial external perspective.

• Objective Analysis of the Market: The advisor can provide data on current market conditions, recent comparable transactions, and the buyer landscape. This objective information reinforces that the current offer is fair and reflective of the market, or identifies areas where the deal might be improved.
• Highlighting the Issues with Backing Out: While acknowledging the owner’s feelings and concerns, the advisor can also provide a realistic assessment of the financial and other implications of walking away from a near-closed deal. This includes potential legal fees, wasted time, damaged goodwill with the buyer, and the challenge of restarting a sale process with other buyers after having walked away from the original deal.
• Evaluating the Pros and Cons: The advisor can guide the owner through a systematic evaluation of “what if I don’t sell?” versus “what if I do sell?” This structured thinking helps the owner weigh the pros and cons logically, rather than being overwhelmed by emotion.

In essence, an M&A advisor changes from a deal intermediary into a confidante and strategic partner when a business owner faces cold feet. By navigating the emotional complexities, exploring flexible solutions, and providing objective analysis, the advisor can significantly increase the likelihood of successfully closing the deal, ensuring the owner achieves their long-term goals while minimizing the risk of regret. For a waffling business owner, an M&A advisor can be the steady hand that guides them across the finish line.

In my example from last year, the deal seemed to teeter for a few days, and then it seemed to be entirely off. We were resigned to the idea that the transaction would not close. We spoke with the client every week or so, checking in on his thoughts, answering his questions, and letting him know that we still thought it was possible to complete the deal, but that time was running short. We increasingly believed that the agreement would never close, but we stayed in touch. He apologized profusely for putting us in this situation.

After about 30 days, he called the jilted buyer and stated that he was ready to proceed under the agreed-upon terms. The buyer, who had experience dealing with sellers who had second thoughts before, readily agreed to close the deal, and they completed it in about ten days. If it had gone another week, I doubt the deal would ever have happened.

Today, that client remains a good friend and has already referred several prospective clients. He is pleased with how the transition went, stating that the buyer had fulfilled substantially every promise they had made. He jokingly refers to us as his M&A advisor and psychologist.

by Ron Edmonds, Principium-White Oak