Ways to Kill a Deal

According to a study published by Baker McKenzie,1 83 percent of acquisitions fail mainly due to issues about people—in essence, the buyer and the seller not taking into account the importance of culture when pursuing a deal.

But there are additional common pitfalls to watch out for during the M&A process, which we will cover in detail in this chapter. As the entrepreneur and operator of the business, you ultimately want to avoid giving the buyer a reason to back out from the deal.

Make sure you consider these factors up-front so that all of the extra work, distraction, and stress is worth it.

Not Respecting the Buyer

Given everything that is on the line here, you should be finding a buyer whom you like, trust, and respect.

That can be hard. It may not be bulletproof. It is the buyer's job to sell you, after all. Still, if you want to be confident your acquirers will follow through on their promises to take care of your team, on the plans for your company and products, and really do their best to follow through on their offer, then it is worth taking the time to get to know them up front.

So when you begin the dance with the buyers, be sure you treat them with respect. Even at this level, it's about people. People can be emotional. Most aren't going to tolerate you being disrespectful of their time, position, and team members. You don't want to work with a business partner like that. Nor does anyone else. If there is no respect, don't expect anything else to make the deal work. Make sure you do the following:

  • Show up to meetings on time.
  • Do what you say you are going to do.
  • Don't speak badly about your buyers behind their backs.
  • Be courteous to their team members.
  • Be civil in negotiations.
  • Don't make them look bad.

Making Changes and New Demands

You can expect most buyers to make changes, make new demands, and try to renegotiate various parts of the deal throughout the process. That doesn't mean you should do the same thing or that they will tolerate you trying to renegotiate terms and make new demands during the process. Unfortunately, as with every part of building your startup, those that hold the gold get to make the rules.

This situation usually only arises if your team gets greedy or you completely overlook something up front.

The best way to avoid this temptation is to make sure your team is on board and be very clear on what you want and need. Take your time before accepting a deal. Be clear on the outcomes you want:

  • Price
  • Multiple for your investors
  • Transfer of technology, IP, and other assets
  • Something for your team members
  • Timing
  • Your future freedom to work on other things

Think through your position on these things. Be sure you leave room to renegotiate. When acquirers want to change something to be further in their favor, then you already know what you can give and take and still get the bottom line deal you really want.

Lack of Commitment from the Team

Your team can kill the deal in a wide variety of ways.

The Board: Voting Power

If your board of directors and those with voting powers aren't on board with the deal, they can derail it fairly easily.

This can happen because they are trying to be greedy and don't think they are personally getting enough out of this deal. They may think they can get a lot more if an exit is punted down the road a few more years.

It could just be personal, if you haven't been getting along. Or, as investors, they could have other business reasons to hold back. Some may not agree with the vision of the acquirer and what the new business wants to do with the company.

A lot of this can be avoided by ensuring you are prioritizing alignment with investors and anyone else who is given shares and voting rights through fundraising rounds and recruiting. Nail that alignment clearly, and keep on reiterating and ensuring everyone is on the same page in terms of values, the mission, and the big vision.

Do this well, and the odds you'll be divided and can't agree on an exit or offer will be far smaller. People do change, but you can imagine how problematic this could be if you don't set out to accomplish this and just bring people in for ego and money.

Cofounders and the Executive Team

You will be relying heavily on your cofounders and executive team during this process. They may have almost daily interactions with the acquisitions team running the process on the other side.

If your people haven't bought into the deal, there are a dozen ways they can blow it. If they aren't all-in, then the way they treat the other team, what information they drop, the way they talk about your company and other team members, and how much they either help or drop the ball during the process can sabotage the deal.

If you are not all working as a cohesive team with the purpose of getting the deal closed, then you may need to smooth things over, use your strategic sales skills, and refocus everyone on the original vision, what's really important, and on the best move for the company now.

How You Communicate with Employees and Customers

The outcome of telling employees and customers about a potential acquisition or merger too early can be far more impactful than you imagine.

On the one hand, you may have learned to build your startup with complete transparency with your team. You may have shared everything, from the weeks when you almost didn't make payroll to the fact you were only a few weeks from going out of business. You may have shared all kinds of personal moments with your team members along the way.

Yet, some people advise that you should avoid telling your employees about a potential merger or acquisition until the last second. This may be more or less feasible, depending on how big your company and organization is. This issue is much easier to handle if you are working from home or if most of your team is thousands of miles away in another country. It's much harder if you are in one local office and new people have their fingers in everything. Some sellers may tell only their wider employee base on the day the deal closes and after the acquisition is official. Others are forced to tell them in advance because the acquirer wants to interview them.

Even if the deal never completes, employees learning about a potential M&A deal too early can wreak all kinds of havoc on your business. To really foresee and understand employee reactions, you have to put yourself in their shoes—not the way you think they should see it from your perspective, but how they truly see it from their position.

There are plenty of horror stories of what happens to employees in a merger or acquisition. They are going to be wrestling with a lot of uncertainty. They'll have even more doubts and concerns if the information doesn't come from you.

One of the biggest concerns is whether they'll still have a job and be able to pay the rent and provide for their families. Will they be assured a new job or ongoing role, and to whom will they report? What will happen to their bonuses, health benefits, perks, child care, retirement plan, and other types of compensation? All of a sudden, their minds are consumed with these unshakable thoughts. That can be hugely distracting, and it can affect their ability to work when you need everyone at his or her best, performing and making good decisions.

Rumors can spread that the people in the other company aren't great to work with. Perhaps one of your team members worked with them before and will be telling everyone else how bad it is going to be. That can lead to demoralization, apathy, and absenteeism. These things can spread quickly, like an infection, through the ranks.

Not only can you expect this to lead to low productivity but also mistakes in daily work and employees being short with other team members, vendors, and your customers. A quip on the phone or meeting can leak out.

Even in the best-case scenario that your team secures new employment contracts and the same level of compensation packages and job titles, it's unlikely you'll be merging with a company that has an identical culture and operating thesis. So now your employees face the prospect of going from a tight-knit group and exciting startup culture where they have an impact and can move fast to possibly the opposite. Then there is the mission. They bought into your company's mission. They wanted to work for you. Now what?

Unfortunately, most of the little information out there on acquisitions is targeted toward startup employees, and it's presented in a way that prompts them to take a defensive position. They are warned that no one cares about them as people in these deals.

If employees have stock, they are urged to get a lawyer of their own. This can also lead to employees shopping their stock to potential buyers and new funds.

One possible knee-jerk reaction may be that employees start calling recruiters and blasting out their résumés online to line up new jobs. Not only can this send out all the wrong signals for this deal and the company but also it can lead to competitors poaching some of your best talent at the worst moment for you.

All of these matters can create friction between you and your team. It can destroy the cohesiveness that got you to the deal and pit you against each other, possibly hurting the deal's chances. If the deal doesn't close, then your team may be a mess, and you can be in a worse position than when you started negotiations.

If customers and vendors have been treated poorly during the process, that can have a negative impact, too. They may choose competitors who are going the extra mile to win their business with great service. They may question whether the relationship is going to continue to be what they really want and need after this transaction.

This is clearly not a time when you want customer acquisitions, revenues, or operations to slow down or to have to spend a lot more of your personal time trying to mend bruised relationships. A lot depends on you here. It depends on how you lay out what's happening and what's next. It may depend on whether you've secured your employees new employment agreements and how you help them engage and get along with your acquirers.

During this period, everyone will be reacting to how you lead by example. Are you still showing up early and taking care of your team and working on the same growth plans as last month? Or have you changed and switched modes? Are you riding your employees harder than ever to pump up the numbers, sacrificing values by encouraging them to gloss over issues to make your company look better than it is, and then spending your days ranting or bragging about all the millions you are going to make from this transaction? (Although a few employees may get a tiny fraction of that money, will others lose their jobs?)

Ideally, you will have considered this moment right from the beginning, at least from the moment you begin fundraising and accepting outside investment. Part of your vision, mission, values, and culture that you continually iterate may include looking forward to this phase and the best outcome for everyone involved.

Frame it well in advance. Set expectations. Let your team know that although you can't promise anything (just like any other day in a startup), you will be seeking a great-fitting acquirer who is good for the mission and vision, who shares your values, and who will create the best outcome for as many team members as possible.

If you have properly prepared and taken your people's needs into consideration, when you do get to this point, everything will go far more smoothly.

Withholding Information

Withholding material information can be a very serious issue in M&As. I have seen many deals fall apart as a result. As the seller, you are warranting that all the representations you are making of your business are true and accurate.

Omitting information that can alter the numbers or value for the buyer in the future (if even only from their perspective) can become a big legal and financial problem, or at the very least, result in renegotiations in the middle of the process.

Your buyer is going to use auditors, accountants, and researchers to validate and scrutinize everything—just as you would with so much money on the line and the same legal responsibility to your shareholders and investors.

So if you left something out, they are going to find out. You can imagine how that may cause them to distrust you and want to dig deeper, and keep digging. It is far better to get any flaws out onto the table in advance. It will save you a lot of time and headaches.

Following are some of the common areas where acquirers discover information that wasn't disclosed.


Any existing loans, judgments, or other credit need to be disclosed. It can clearly change the value of the deal. Don't omit any new debt you have been applying for or negotiating. A new loan at the last minute can be an issue, too.


Who are the owners, how many are there, what stock options have been promised? They want to know with whom they are doing business and who else has rights.

Accounting Issues

Many young startups are not very focused on accounting and taxes. What works for you in the early days of bootstrapping isn't going to fly when there are other shareholders involved or you are heading toward an IPO.

Legal Issues

Are there any pending lawsuits or legal settlements? Issues with regulators? What IP is really filed and owned (versus borrowed) or has the potential for copyright issues?


All liabilities need to be disclosed, and you shouldn't be taking on new ones during this process. It will create complications. Liabilities may include employment contracts, leases, and other financial commitments and operating expenses.

People and Customers

Are you losing any customers or team members the company thought were on board and were expected to be a part of the deal?

A good recipe to avoid a deal falling apart is to be humble at all times, to guide yourself with integrity throughout the process by delivering on your word, and to always be in communication with the relevant stakeholders so that there are no surprises.


  1. 1 https://www.bakermckenzie.com/-/media/files/expertise/employment/the-future-of-work-series--business-transformations-report.pdf?la=en
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