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How the Ups and Downs of M&A Can Feel Like a Game of Chutes and Ladders

Final Ascent CEO Steve Conwell likens M&A to the ups and downs of a classic game

How the Ups and Downs of M&A Can Feel Like a Game of Chutes and Ladders

Chutes and Ladders is a timeless game where players’ pawns will move back and forth across the board, following the numbers (ladders) upward. But, of course, you can also sometimes go down (backwards), too, by sliding down chutes.

As it turns out, the world of mergers and acquisitions can feel a lot like Chutes and Ladders.

Certain points in the dealmaking process can quickly move you forward. Preparation is key. Business shouldn’t approach or accelerate the sales process without careful, thoughtful preparation, oftentimes years in advance for the best results. This can include:

  • An intense review of financials by an accounting professional (more on this later)
  • Conducting sell-side due diligence and creating a virtual data room to house all the relevant documents that buyers will ask about during a deal process.
  • Freeing oneself from the business and delegating to the management team and employees. The less time you work in your business, the more valuable you become. This needs to be done well in advance.
  • Careful tax and estate planning well in advance to minimize tax burdens that translate into additional wealth now and in the future.
  • Considering your business transition options, which are numerous, in advance with flexibility allows for more opportunities to transition.

As it turns out, the world of mergers and acquisitions can feel a lot like Chutes and Ladders.

There are also points in the dealmaking process that can have you quickly sliding back. Lack of preparation for a sale, combined with incomplete or ineffective sell-side due diligence, is a Molotov cocktail lighting the dealmaking process on fire.

Related content: Middle-Market Dealmakers Prepare for a Rebound

Leaving value on the table is a quick way to plummet buyer interest, and the value of their offers, and this could be done in a variety of ways:

  • Skeletons in the closet in all their forms (as you can imagine, there are many that surface, and your M&A advisor needs to know these in advance)
  • As we mentioned, businesses that are bogged down with their owners who are buried in their companies can be essentially worthless.  It’s an immediate slide down the shoot to no transition at all
  • Reliance on key employees without incentive compensation strategies designed with golden handcuffs beyond the transition creates risk for the buyer. What if they leave the company right after the acquisition and, as an example, take customers and other employees with them?
  • Inaccurate or incomplete records discovered during buyer due diligence make buyers leery.  What else are they missing that could showcase a company’s real value?
M&A’s Ups (Ladders) and Downs (Chutes)

To continue climbing ladders throughout your M&A journey, it’s important to first create a business that goes into the journey with strong financial performance. Buyers want to acquire businesses which are thriving, not surviving. Buyers prefer to grow a business which is already successful over a turnaround business. This is displayed with accurate and complete financial records, another rung on the ladder.

When you combine that with businesses which are free from their owners, have strong positive cash flow and a uniqueness to their business that sets them apart from their competition, you’ll successfully climb more ladders and win the game.

The downs are multiple. The “chutes” include businesses which have owner concentration issues and are rarely sellable. They may lack a management team, and with the owner buried in the business, there’s very little value to compete for the buyer’s attention.

Upside-down cash flow is difficult to overcome—buyers can’t acquire a business and win favor from customers and suppliers if they’re quick to change credit terms to turnaround the company’s cash position. So down the chute you go.

As we mentioned, events and/or information in the past that shed a bad light on the seller and are not disclosed early in buyer due diligence can lead to an immediate break in a deal process. An M&A advisor needs advance notice of this information in order to build a strategy. An example could be a seller was arrested when they were 21 and spent a night in jail, and they thought it was expunged from their record. A simple background check brings this to light. Other “skeletons” include tax returns not submitted to the IRS, fraud, a lawsuit/conviction in the past or a pending lawsuit and much more. Situations like these can put an immediate stop to a deal process, the tumbling continues, and the business does not sell at all.

Obstacles That are Small Slide-Backs

Not every slide-back leads to losing the game. Some are natural. M&A advisors and deal attorneys have a saying: “If the deal hasn’t shut down at least three times, then we don’t have a real deal.” With that said, there are common slide-backs which aren’t serious pitfalls, such as the following:

  • Advisor calendars which extend the deal timeline. While this can become a problem, it’s a natural phenomenon. Good advisors are busy, and you can’t completely control the buyer’s deal team, so dealmakers must do their best to drive the ship and advance the journey.
  • Seller fatigue. It’s tedious running a deal process and continuing to grow your company simultaneously, and there are many first-time sellers who aren’t used to the process. That is why it is vital to have strong advisors in your corner who help the owner course correct when they need to, as well as to be a strong shoulder at times to cry on when owners get emotional. Throughout the journey, this can be something to manage and evaluate.
  • Minor errors during buyer due diligence. Of course, it’s critical this is kept to a minimum, and it is exit strategists and M&A advisors’ job to ensure the buyer’s questions are answered succinctly, accurately, completely and in a timely manner.  If inquiries go directly to the seller, questions can be misunderstood by the owner or a team member.  Buyers must understand it’s best to keep these errors or lapses in judgement to a minimum.
Moving Ahead to Significant Dealmaking Milestones

There are many milestones to advance a deal—climbing the ladder through the M&A journey—which leads to a successful and lucrative exit.

Milestone 1: Assemble a strong deal team. It is imperative owners work with strong advisors early in the process. Having strong advisors in your corner with significant deal experience goes a long way in navigating the ups and downs of a deal process. For example, engage with a seasoned M&A advisor to navigate the sales.

Related content: Challenging Market Brings Seller Opportunities

There are many steps in the process, each important and quintessential in advancing the deal process. They include  building compelling confidential information memorandums, creating a business valuation based on market conditions to identify a true range of expected deal value, identifying the right buyers, negotiating letters of intent and final sales prices and terms and more.

Milestone 2: Have accurate financial records and validate financial performance. Financial records can be akin to a business’ resume.  The accuracy and completeness of financial statements and records, combined with going to market with strong financial performance is a strong indicator a deal will close. Reputable advisors recommend a CPA audit of financial statements as a great first step and getting a sell-side quality of earnings report (“QoE”) in its place to validate earnings and enterprise value.  Simply put, a QoE is a report issued by a third-party CPA firm which is used to analyze a business’s financials to better understand its historic earnings and the potential for future performance. Buyers review the QoE to get comfortable with the valuation of the company.

Milestone 3: Confidential and complete sell-side due diligence. Buyers review hundreds, if not thousands, of documents and requests from attorneys, bankers, business analysts, CFOs, buyers and more, before a deal is completed.  Ensuring the online document repository of documents for buyer due diligence (called a “virtual data room”) is complete, up-to-date and accurate is vital to helping ensure a smooth and timely process.

What Hinders You from Moving Ahead?

Probably one of the most prevalent deal-killers is deal fatigue. Typically, a deal has approximately 90 days of goodwill once a letter of intent is signed, before things can go south. Then, “finger-pointing” begins, and we tumble down the chute.  Again, having a strong deal team can help mitigate this risk.

100% communication with the deal team is imperative. Forgetting, or leaving out, key information with the deal team is an immense obstacle.  If there’s a skeleton in the owner’s closet, as we discussed, the entire team should be aware. Owners may be embarrassed about past transgressions, which can include anything from brushes with the law, former bankruptcies, or “off-balance sheet” loans to family members and friends. First-time sellers may not even realize this information is relevant. Ultimately, the deal team must have all information to prevent sliding backwards in the M&A game.

What Can Make You Return to Square One?

Unlike the game of Chutes and Ladders, a very successful deal process leads to everyone winning—the seller and the buyer.

Although it may seem obvious but generally never is, one of the biggest detriments to a deal is not weeding out the wrong buyers. The key to finding the ideal buyer is sitting down with the seller to help them understand the pros and cons of each prospective buyer. It’s important to keep in mind the end goal of all happy parties in a deal.

Large macro events can make the deal return to square one.  Unfortunately, industry-specific challenges often affect the entire sector, including economic and political events, rising interest rates and inflation, and a strong buyer market which lowers multiples and deal values. Shining star sellers sell for maximum value regardless of the environment, but it’s part of an advisor’s job to evaluate macro events and the effect these events have on a client’s ability to achieve their ideal goals.

Winning = Selling Your Business With All Parties Happy

Unlike the game of Chutes and Ladders, a very successful deal process leads to everyone winning—the seller and the buyer. There may be intense negotiation and give-and-take, but the goal is for many winners: the owner and their family, the management team and employees, and the new buyers and their team. Winning creates multi-generational wealth and simultaneously inspires the new owners to scale and grow the company to new levels of success.


Steve Conwell, CEO of Final Ascent, is an accomplished entrepreneur with over 25 years of business advisory and financial consulting experience. Steve is passionate about helping business owners creatively tackle their biggest challenges and successfully grow their businesses to a lucrative and successful business exit. Throughout his career, he leveraged Big Four public accounting, internal and IT audit and controls experience with Fortune 500 and middle market companies, always returning to his entrepreneurial roots.


Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.