How an M&A deal can go sideways and what to do about it

The 2018 M&A deal environment in the Philadelphia area was particularly strong across the middle market. And while the pace might not match the previous year, considerable deal activity is expected through 2019. Buyers and sellers looking to capitalize on the market should be mindful of the mistakes that can derail a deal, and how those mistakes can be avoided.

Smart Business spoke with Richard Snyder, director of audit and accounting at Kreischer Miller, about M&A pitfalls and what preparation ahead of negotiations can help buyers and sellers avoid them.

What tends to trip up M&A deals?

Any time the buyer doubts the quality of the information provided, there is a high risk of negative consequences. These first show as a loss in value and can eventually lead to the loss of a transaction. This may arise when information and documents requested by the buyer are slow to be provided, the seller cannot provide adequate explanations about certain details requested by the buyer, or information provided by the seller differs from the underlying support and details that come out of the due diligence process.

Complex issues such as customer concentrations, ongoing litigation, and environmental remediation may pose significant risks to a company that a buyer cannot overcome. These and others may impact the purchase price or may be too great a risk for a buyer, which results in the buyer walking away from the deal.

What happens if a deal goes sideways?

A great deal of resources are utilized by both the buyer and seller in a transaction. If a deal goes sideways, both lose the time and resources they put into the transaction. The seller’s management team loses valuable time that could have been spent on the operation of its business. Additionally, sellers may spend a considerable amount of money on professional services and other fees as part of the deal process. The business may continue to be for sale and a failed sale may make it less attractive in the marketplace.

A buyer may lose the lost opportunity cost to pursue other deals in addition to professional fees and other costs. However, it is important to note that the cost of failed mergers and acquisitions may far outweigh the costs spent on a potential transaction and walking away if the transaction is not right for both sides.

How can buyers and sellers increase their chances of success?

Sellers need to be prepared for the sale of their business by making sure they have a full understanding of the sale process and the necessary resources. Their books and records should reflect complete and accurate financial reporting and the owners should have a full understanding of risks that could affect the company’s valuation and potential salability. Understanding the latter gives the seller the opportunity to be upfront with a buyer and address potential issues before the sale process begins, which could offset any negative impact on a transaction.

On the buy side, it’s always important to have a sound due diligence process, and an understanding of the deal environment and the target’s industry and regulatory environment. Accurate valuations are also important in determining an appropriate purchase price, as well as having a plan for the integration of the business post transaction.

Who should be a part of the buyer and seller deal teams?

Sellers should have a good transaction attorney, accountant and possibly an investment banker. The investment banker will assist in preparing marketing information, taking the business to market and finding prospective buyers. It’s always a good idea to have an experienced accountant and attorney on the business advisory team. These advisers should not only understand the company, its industry and the deal market, but they should also have transaction experience.

Buyers often have internal teams that can run a financial analysis and conduct due diligence on a target. However, some buyers also work with an outside team on the financial due diligence.

There are multiple reasons deals don’t go through, but a significant obstacle is a lack of preparation. Having good advisers on both sides who are experienced and understand M&A is very important to a successful deal.

Insights Accounting & Consulting is brought to you by Kreischer Miller

Best practices to follow and pitfalls to avoid with your next acquisition

So, you think you know what it takes to buy a business? With the range of available financing options and a red-hot M&A market, there’s a lot to consider.

Finance-minded experts and entrepreneurs shared their experiences at ASPIRE last year. The discussion, moderated by Brian Dobis, senior vice president of commercial banking and C&I team manager at S&T Bank, featured:

Douglas P. Brosius, Partner, PNC Mezzanine Capital

Jeffrey A. Ford, Partner, Grossman Yanak & Ford LLP

Matt Harnett, Partner, Tecum Capital

Bob Petrini, President, Chick Machine Co. LLC


Strategies for buying

As long as the basket looked good, I was OK with putting all of my eggs in one basket.

—Bob Petrini

In this type of competitive market, you have to be able to turn over every rock that you find and see if there is a deal there.

—Doug Brosius

If you are already so invested that you can’t walk away, you’re probably losing objectivity. Maybe you’ve decided emotionally you need to do the deal from either the buy side or the sell side, maybe you’ve invested so much the breakage fees are too high, financially. But if you lose objectivity, you miss too many other things.

—Jeffrey A. Ford


Your adviser’s role

We know they just put a little lipstick on this pig, and our job now is to wipe off the lipstick a little bit and see what the creature looks like underneath — allow our client to see what this creature really is going to look like, how will it behave, how much will the cost be to assimilate it into my herd, and what other baggage will it bring with that.

—Jeffrey A. Ford


Make a note

Everybody thinks of customer concentrations, but that is so obvious. Nobody needs us to find a customer concentration. We have found more fascinating things in other concentrations: over 70 percent of sales represented by one salesperson who happened to be over 75 years old. So, be aware of your concentrations and your ability to hang onto them and transfer those.

—Jeffrey A. Ford

You start out as a seller, always, as a buyer. You have to sell yourself and establish trust, and then get to where you can flip the switch and become the buyer.

—Bob Petrini

Entrepreneurs are very proud, ‘Hey, I built this company with everything I did here.’ Just bottle all of that up when the investor comes and make sure, if anything, you downplay your role.

—Matt Harnett


Timing matters

During due diligence, mostly all that can happen is bad things. The company can fall off in performance, you can find terrible issues. So not that you want to rush to get a deal done or you want to see these issues fall out, but you have a finite period where you can go in and evaluate these things.

—Doug Brosius

The one thing that I would have done differently would be sense where the seller was and make direct contact there more and push the process to the extent I could.

—Bob Petrini


They’re professionals for a reason

If you’re really trying to grow it, grow value into a larger enterprise, I think you’re smart to have an institutional investor. And if things get rocky, you’d like to know you’re dealing with an institutional investor that’s used to working through covenant issues, used to managing investments in good and bad times, is a good partner. Whereas, if you have a personality who is really emotionally attached to a business, things can get really sour really quick if he doesn’t get his interest payment.

—Matt Harnett


Red flags

At the end of the day, we are in business to put money to work. So, we don’t want to lose it, we want to get good returns. But don’t blow up a deal with 10 people on the phone if it’s really not an issue.

—Matt Harnett

Letting the process happen is probably the wrong approach. It’s like, if you’ve ever fly fished, it’s catching that trout. Don’t let too much line out. Don’t pull it too tight. Either way, you’re going to lose the seller.

—Bob Petrini

We have observed, over the years, that no matter what the contract says, no matter what the indemnifications say, too many of the employer-related items or customer-related items end up being borne by the buyer. Even if the agreement says the seller was responsible, you’re still going to pay the PTO costs or the sales tax that wasn’t collected from the customers.

—Jeffrey A. Ford


Seller financing in moderation

A lot of these transactions where the seller is willing to take seller financing, either doesn’t want to let go of the business or can’t quite get the value anywhere else or there’s just some dynamic going on that says, ‘Hey, maybe this isn’t the right situation or maybe we are approaching this situation the wrong way.’ So again, our bias is always seller financing is good, it’s cheaper, but it has to be manageable.

—Doug Brosius


7 things to consider when making an acquisition

Whether you’re acquiring another company, or if a company is acquiring you, there are a few things that all business owners or partners should consider before making the final move. Acquisitions can be a smart and strategic idea, but if not planned carefully, could end up a total bust! Here are seven things to consider when making an acquisition to give you some ideas for your next move.


There are a lot of costs involved when acquiring another business, and if you’re not careful, things could get ugly pretty quickly. How will your two companies make a profit? Will there be any additional investments you’ll have to make? Can you handle the salaries of all the employees combined? Take some time to go over your finances and the finances of the other company. Make sure to investigate the background of the new company. A full audit is truly ideal to check for any lawsuits, bankruptcies, etc.

A good match

Opposites don’t always attract, at least not in the business world. Most likely the company you are acquiring will have its own way of doing things. Before you decide to become one, you’ll want to do some research on the other company’s culture.

When acquiring another business, the company culture plays a major role in whether the acquisition will be a success or a failure. Drastically different company cultures can create tension, confusion and disorganization. You’ll want to cover all of the tiny details as to how the other company runs its business and decide if it would be a good match for your company.

Defining roles

When you make an acquisition you already have employees, but you’ll also be gaining even more. It’s important to know how many employees the other company has, what each of their roles are and which departments they work in. Decide if each department has an efficient amount of people, if some employees will be willing to move departments, or if new departments need to be made. Also note that upper management roles might also change. Is the boss okay with becoming a regular employee? Or will new CEOs be assigned? Defining these roles ahead of time will help to prevent any confusion among your workers.


Establishing the main objective of the newly combined companies is important before making the acquisition. You will want to make sure that everyone is on the same page and that the two companies will mesh together well. How will you make a profit? What are the benefits of acquiring the new company? What are the two companies trying to achieve by working together?

Proactive planning

You don’t want to acquire a business without thinking ahead. When two companies come together there will be a lot of different aspects to consider and you’ll want to make sure that you have covered everything before officially merging. That way when you’re ready to break the news to your team, you will be fully prepared to address any questions or concerns.

Choosing a company

It’s best not to wait around for a potential company to put up a “For Sale” sign. Instead be proactive about the acquisition and scout out any companies that you think would be a good fit. If the company you are looking to merge with is not for sale, then be ready to set up an offer and a solid reason as to why this acquisition would benefit them.


You’ll want to do your research to find out who your potential acquisition competitors are or will be. If their competitors are much more advanced than yours, and might be hard to beat, then that company might not be the best bet for your acquisition.

J. Michael Waters, Jr. is an attorney at Dismuke & Waters, P.C. He can be reached at (817) 749-0317 and [email protected].

Acquisitions and cultures: The right fit is the bottom line for both; make your decision after careful research

Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected], and your inquiry could be the inspiration for his next column.

Q: I’m been growing my business organically the past several years and have concluded that in order to accelerate growth, I need to look at acquisitions. From your experience, what are the top factors to consider when evaluating the type of company to acquire?

A: I think it is essential to include acquisitions if you have a long-term growth plan. At Invacare Corporation, we wanted to grow 50 percent organically and 50 percent by acquisition. You can set it at 60/40 or at anything you want. It just felt like 50/50 was right.

During the period I ran Invacare, we did more than 50 acquisitions. They generally fell into three categories:

  1. Geographical expansion, such as in another area of the country or a foreign country.
  2. A new product line that uses your current distribution system. For example, wheelchairs and beds, in my business, are sold through the same channel, to the same people, to the same customers.
  3. Consolidation of your industry. As an industry consolidates, you should become a much stronger player and improve your sales and margins. Improved profitability is consistent with improved market share.

As far as what you look for, we always had an acquisition team to examine a business in every way they could. You can’t collect too much information. Sometimes even casual conversations are as important as formal presentations.

Try to find out if the business proposition is presented fairly and if you understand everything going on.

I never did an acquisition that wasn’t accretive to the shareholder. It always added to my earnings. We were able to do acquisitions because we had a good, positive cash flow and a solid line of credit from the bank. If you don’t have good cash flow and you don’t have a lot of credit, forget it.

Q: How important is culture when merging two organizations, and what pitfalls exist when trying to merge two cultures that may not perfectly mesh?

A: There are always issues with culture when merging two companies. In my case, I always thought that Invacare was the preferred culture. But we were always sensitive to other companies’ cultures and tried to blend them in over time.

You must recognize there are usually redundancies, particularly with infrastructure. For example, you don’t need two presidents. Take action fairly quickly. Morale will fall in the acquired company if you don’t show that they are loved and accepted by the new company.

If the acquired company won’t move its facility, and you need them, you’ve got to compromise. That’s a difficult subject but the important thing you want is one and one to equal three.

By putting the two companies together, you want the merger to be better than if they were alone. You have to be sensitive to that, use common sense and do the best you can. If you’re insensitive, you may destroy the company.

Be patient and wait for success to arrive; do what is necessary to win

Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected] and your inquiry could be the inspiration for his next column.

Q: You write in “An American Journey” about the opportunities you took advantage of. What if you were graduating now with your master’s degree in business administration? What trends do you see?

A: I’ve been on the Harvard Business School advisory board the last few years, and today’s graduates want to work on Wall Street where starting salaries are phenomenal — much higher than industry. Fewer graduates want to work for a company. One of my classmates runs a huge company and says he doesn’t even recruit at Harvard Business School anymore because he can’t compete with Wall Street.

I think if you go into business, you start at a certain level and work your way up. A lot of the graduates today want success a little too fast. But there is not much I would change about my life. Every job I took I tried to be the best I could be, I learned and then I got promoted. I performed, but had to strike out on my own to be a CEO.

I was good at sales and marketing, and my superiors did not want to take me out of it. If I had to do it all over again, I\ wouldn’t do anything differently.

Q: I am in sort of the same situation you were in at 36 years old. I have a family business. I look for companies to buy that I think would add value, too. It’s a very difficult environment. I don’t have a lot of money. What sort of advice would you give me if I were to try to do what you did today?

A: A lot of people say they want to buy a company, but I am not sure they want to do the things necessary to complete a transition. It’s more difficult today; there is more competition. You have to let lawyers and accountants know and talk to everybody you see. I would say it generally takes a year, unless you are lucky, to find an opportunity.

Here’s a story I’d like to tell you: I once bought a company with zero money. I was walking my dog on a Sunday afternoon, and I ran into my lawyer friend Bob Gudbranson. He told me about a deal, I later put together a finance package and received a spectacular return.

It looked like I was required to invest $3.3 million. I was able to do a sales-leaseback for $2 million on the property. Secondly, $1.5 million in receivables (from highly reputable companies) could be purchased for $1 million. So I borrowed $1 million secured by the receivables. I paid back the loan, took the profit on the receivables after tax and invested it in the company.

You never know from where your next deal will come. Just be on the lookout and let people know you are seeking an opportunity. Also think about putting your investment group together. If you find an opportunity, you’ve got to be able to put it all together financially.

A complete story of his Mal Mixon’s rise from rags to riches is told in his book An American Journey, published by Smart Business. It can be found at and on

Amazon in talks to buy TI mobile chip arm: paper

SEATTLE, Mon Oct 15, 2012 – Amazon.Com Inc. is in advanced talks to buy the supplier of chips for its Kindle tablet computer, Israeli financial newspaper Calcalist reported on Monday, in what could mark a step in the company’s ambitions in the smartphone sector.

The report said any deal for the smartphone chip business of Texas Instruments Inc. would probably be worth billions of dollars and could make Amazon a direct rival to Apple Inc. and Samsung Electronics Co. Ltd., which also design their own chips.

“It would make sense, as the chip is a critical component and Amazon has an existing relationship with TI,” said Ovum analyst Nick Dillon.

TI’s chips are used in Amazon’s Kindle Fire tablet and Amazon CEO Jeff Bezos had underlined TI’s strength in the industry at the tablet’s recent launch.

“With the trend towards more vertical integration, led by Apple, speculation that Amazon is interested in TI’s chipset arm is unsurprising,” said Ben Wood, head of research at British wireless consultancy CCS Insight.

But some analysts questioned whether it would make sense for Amazon to spend billions on the business when many smaller and independent smartphone chip makers are reporting steep losses.

TI has flagged its plans to exit the business.

Gartner analyst Carolina Milanesi said she doubted whether Amazon wants to “become that intimately involved with hardware.”

TI said last month it would shift its wireless investment focus from products like smartphones to a broader market including industrial clients such as carmakers, where it is hoping for a more profitable and stable business.

UnitedHealth to buy most of Brazil’s Amil for $4.9 billion

NEW YORK, Mon Oct 8, 2012 – UnitedHealth Group Inc said it would buy a 90 percent stake in Amil Participacoes SA, Brazil’s largest health insurer and hospital operator, for $4.9 billion, tapping into a fast-growing private healthcare market as challenges mount for its U.S. business.

The deal announced on Monday follows a series of multibillion-dollar takeovers by U.S. health insurers in their home market, including Aetna Inc.’s $5.6 billion buy of rival Coventry Health Care Inc. and WellPoint Inc.’s planned $4.5 billion purchase of Amerigroup Corp.

“(Brazil’s) growing economy, emerging middle class and progressive policies toward managed care make it a high- potential growth market,” UnitedHealth Chief Executive Stephen Hemsley said in a statement.

U.S. health insurers have come under pressure as the government reins in reimbursement for its Medicaid and Medicare programs for the poor and the elderly and as competition grows among health plans serving employers.

The deal with Amil adds to a growing international business at UnitedHealth, the largest U.S. health insurer. The company has begun operations or struck alliances in Australia, the Middle East and the UK during the past two years.

Buying the stake in Amil gives UnitedHealth a chance to test a different model of medical service: Amil offers insurance coverage and also runs hospitals and doctor facilities. While some examples of this already exist in the United States, the largest U.S. insurance companies for the most part operate separately from networks of doctors and other healthcare providers.

Microsoft nears deal to buy Yammer: source

REDMOND, Wash., Mon Jun 18, 2012 7—Microsoft Corp. is close to buying business software company Yammer Inc for more than $1 billion, according to a source familiar with the details.

Microsoft’s interest in Yammer, known for its social networking functions, could allow the software giant to beef up its offerings for corporations.

A Microsoft spokesman declined to comment. A representative from Yammer did not immediately respond to a request for comment.

Backed by PayPal co-founder and Facebook investor Peter Thiel, Yammer said it counts more than 80 percent of Fortune 500 companies as clients. It raised more than $140 million in venture capital funding.

Bloomberg, which first reported the deal, said the announcement about the transaction was expected at the end of June.

Thomas H. Lee buys most of Party City retailer

BOSTON, Tue Jun 5, 2012 – Private equity firm Thomas H. Lee Partners will buy a majority stake in Party City, North America’s largest retailer of party goods such as balloons and Halloween costumes, in a deal that values the company at $2.7 billion.

The retailer’s current private equity owners — Advent International Corp, Berkshire Partners LLC and Weston Presidio — as well as Party City management will have “significant minority stakes” in the company after the deal, according to a statement released by all the firms on Tuesday.

WellPoint To buy 1-800 Contacts for $900 million, according to report

INDIANAPOLIS, Mon Jun 4, 2012 –  Health insurer WellPoint Inc. plans to buy contact-lens and eyewear retailer 1-800 Contacts Inc. for a transaction value close to $900 million, the Wall Street Journal reported, citing a person familiar with the matter.

The deal will close in the third quarter and will start adding to the company’s per-share earnings in 2014, the Journal said in its report. The deal will be financed with cash on hand, the report said.

“We see a unique way of tying 1-800 Contacts into our product design,” WellPoint Chief Financial Officer Wayne DeVeydt is quoted as saying in the report.

WellPoint would also get “a diversified revenue stream into a higher-margin business,” the report said, quoting the CFO.

1-800 Contacts has after-tax margins in the “double digit range,” compared with around 4 percent to 5 percent across WellPoint’s health-insurance business lines, the report quoted DeVeydt as saying.

WellPoint and 1-800 Contacts Inc. could not reached for comments.