Why Making An Offer Can Be The Toughest Part Of The Deal

By Tom Schramski, PhD, CMAA

Volume 2 Issue 24, November 24, 2015

business-man-modified-1241003-639x715Recently, the owner of a healthcare business we represent called me with a plea to assist an interested buyer. “I really like his company and it seems like a great fit,” he noted, “but he just can’t produce an offer in writing.”  After briefly speaking with the buyer about any concerns, he said, “It’s not about the money; it’s just the feeling that we’re committed and there’s no going back.”  When I told him he could build in good reasons to opt out after a signed LOI, he responded, “That’s the best way I can explain it,” and disappeared.

This is a very frustrating encounter many sellers encounter, pointing to the complex thought processes and emotions involved in each transaction.

We all know the objective reasons why potential buyers of any product or service, let alone a multi-million dollar healthcare company, might walk away from a profitable opportunity without making a specific offer:  inadequate capital and/or financing; a poor understanding of the relevant market dynamics; a bad cultural match; a lack of operational synergy; and so on.

But why would a qualified buyer refuse to tender an LOI when the deal has clear strategic value and not one of the above reasons is relevant?

Here are some experience-based thoughts:

  • Even the most competent buyer can be overwhelmed by a great opportunity for reasons that have nothing to do with the target company.  “I can’t wrap my head around the company” is an all-too-common phrase in the healthcare M+A market, even from the lips of a Harvard MBA.
  • The prospective buyer may have significant internal operational problems, including integration concerns, unrelated to the potential acquisition itself.  One acquirer told me several months after leaving a deal that “several of my management team members made a ruckus about the acquisition, so I caved in.”  The seller had no idea this was an issue and the buyer was “too embarrassed” to tell her the truth.
  • Buyers, like every other person, have personal lives that can affect a potential transaction.  This is one of the most human realities that can impact deals … and they’re often invisible to both the seller and the advisor.

Sellers and buyers in the healthcare marketplace have distinct realities that must be appreciated and anticipated. Sellers agonize over selling their “baby” and financial planning, while buyers fret over future value and how to mitigate risk.  Yet when things work right, both experience that sometimes scary, but wonderfully transcendent moment when they both say “yes” and the deal closes.

Transactions may fall apart for reasons that can’t be fully explained, but as Sir Richard Branson noted, “Business opportunities are like buses; there is always another one coming.”