A well-known data room provider recently issued a statement: “Deals are taking 23% longer.” This comes as no surprise to anyone active in the M&A market. Whereas transactions used to be completed in nine months, twelve months is now the rule rather than the exception. The market is in flux, and as a result, buyers perceive greater risk—even though, from the sellers’ perspective, there isn’t necessarily a direct reason for this.
What does a longer deal timeline mean for you as an entrepreneur? And how can you prevent the process from stalling or even falling apart? In this blog series, we’ll discuss three common causes of delays. Today, we’ll start with an important topic: the difference between a budget, a forecast, potential, and actual results.
Ambitious Budgets: When Ambition Works Against You
Many entrepreneurs choose to set a high growth forecast at the start of a project. This is understandable: the higher the expected profit, the higher the potential valuation. But this also poses an immediate risk.
So-called “hockey-stick forecasts,” in which profit growth suddenly surges, are viewed critically by buyers—especially when that growth is difficult to substantiate. If, during due diligence, it becomes apparent that the company is falling short of its projections, this often leads to renegotiation. For example:
- Earn-outs
- Vendor loans
- Price Adjustments
That has an impact—not only on the total value of the deal, but especially on the net amount you ultimately receive at the notary’s office. And that affects you, both emotionally and financially. Moreover, a change in the structure adds extra complexity and paperwork to the purchase agreement.
Delays and deal fatigue
If the buyer and seller have to renegotiate the terms, the process will be delayed. The due diligence will already have been completed by then, but the finish line will be pushed back.
At the same time, you see that some buyers are strategically capitalizing on this. By dragging out the process, the “switching costs” go up. After all, you’ve already invested months of energy, time, and money into it. So it’s tempting to make concessions, purely to close the deal. We call this “deal fatigue,” and it happens more often than you might think—especially in one-on-one processes.
Staying in control: Ask yourself these three questions
How can you prevent this as an entrepreneur? By taking a critical and realistic look at your numbers beforehand. And by going into the process well-prepared. Start with these three questions:
- Is your budget realistic?
Compare the budget with performance over the past few years. Is the growth target ambitious, or unrealistic? How do you explain a higher margin? There are pitfalls, especially on the cost side. Additional staff or investments can put downward pressure on EBITDA in the short term.
- What do the commercial signals indicate?
You know your market better than anyone. What does your sales pipeline look like? Are there delays in conversion? Do you expect price pressure from suppliers, or rising sales? Use those signals to assess the feasibility of your forecast.
- How much risk are you willing to take?
Once the budget is set, it often takes another six months or so before the deal is finalized. If you’re consistently falling short of the numbers, that has direct consequences for the structure of the deal. So ask yourself: what’s more important? Maximizing value or ensuring the deal closes? Additionally, an ambitious budget isn’t a risk in and of itself, but proper positioning and context are crucial for managing expectations.
Realism Creates Value
Proper preparation prevents delays. And that starts with a clear and solid financial foundation. At Hogenhouck M&A, we actively guide you through this process:
- We'll help you take a critical look at your forecast
- We manage expectations and ensure a clear understanding
- Together, we're building a transparent data book
- We professionally set up the data room in advance
This way, you stay in control and maintain a firm grip on the timing, content, and outcome of the process.
Curious about what we can do for you? Feel free to contact us with no obligation. We’d love to meet you.
