Welcome to The Private Equity Podcast! In this episode, host Alex Rawlings discusses the critical factors behind deal failures and how to steer clear of them. Brian Scanlon from DealGen Partners shares insights on deal origination and sales processes. He stresses prep and presentation, akin to staging a house for sale. Brian pinpoints reasons for deal failures: unprepared sellers, messy finances, and unrealistic valuations. He also covers effective deal structures, boosting multipliers, and seller challenges like cultural clashes and prolonged due diligence. Key takeaway: swift action and clear communication are vital to keep deals on track. Tune in for expert advice on selling a company successfully and avoiding pitfalls.
[00:00] Alex Rawlings introduces the topic of selling a company and the challenge of achieving high multipliers. He welcomes Brian Scanlon, noting his previous podcast on deal origination.
[01:18] Brian Scanlon discusses the common reasons deals fail, primarily due to sellers being unprepared. He explains the importance of proper preparation and packaging, akin to staging a house for sale.
[03:40] Brian estimates that nearly all proprietary deals are unprepared and outlines why private equity funds prefer these deals despite the lack of preparation.
[04:39] Brian highlights the role of investment bankers in managing the sale process efficiently, similar to selling a house, and stresses the need for sellers to be upfront about financials and issues.
[07:30] Brian identifies the lack of clean financials and unrealistic valuation expectations as major reasons deals fail. He emphasizes the importance of accurate financial statements and realistic deal structures.
[09:52] Brian explains typical deal structures, including cash at close, earnouts, and equity rollovers, and stresses the importance of understanding these structures before going to market.
[11:17] Brian discusses factors that increase a company's multiplier, such as recurring revenue, customer retention, and quality contracts. He uses the staffing industry as an example to illustrate these points.
[14:13] He explains the challenges of project-based businesses with high customer churn and declining revenue, which generally have lower multipliers.
[16:06] Brian talks about why sellers back out of deals, citing cultural misalignment, process frustration, and the length of the due diligence period as primary reasons.
[19:56] He notes that tighter debt markets and more rigorous due diligence are causing deals to take longer, increasing the risk of the business not appearing as attractive by the closing date.
[22:50] Brian emphasizes the importance of effective communication to keep deals moving and shares examples where delays led to deals falling through. He advises completing the due diligence period quickly to avoid deal collapse.
[25:46] Alex asks for top advice.
[26:20] Alex thanks Brian for joining him on the podcast.
To connect with Brian, visit his LinkedIn profile: Brian Scanlon LinkedIn
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The Private Equity Podcast, by Raw Selection