June

10th

2017

Extraordinary reasons why business sales break down

By

“You cannot be serious!” No, not John McEnroe but the words we exclaim when business sales break down for bizarre and unpredictable reasons.

Buying and selling businesses is a complex and often lengthy process. So it’s comforting to know there are business brokers like us to support vendors and buyers throughout the experience. In reality it isn’t always plain sailing – business sales can fall through for a number of reasons, so it’s important to prepare for the possibility.

Cars, shares and separation

Once an offer is verbally agreed some common reasons for sales to break down include unexpected health issues, acrimonious divorce or separation, bereavement, and partnership or shareholder disagreements. Would you believe retention of a company car can be a key part of a deal?

As part of the Business Partnership franchise network, we’ve tapped into the knowledge and experience of our fellow regional partners. We’ve collected some true (and unbelievable) stories of real business sales that have broken down and the reasons why.

Reneging on terms

The vendor of a three-storey restaurant accepted an offer on condition the purchaser cleared out all the old furniture. The purchaser agreed it was detailed in the Heads of Terms. Several weeks into the sale, the purchaser changed his mind and asked the vendor to clear out the furniture and fittings. The vendor disagreed pulled out of a deal worth £440K to him. Ironically he could have hired a clearance company for a few hundred pounds to do the job!.

Parking problems

The lease terms for the sale of a bookshop included three parking spaces in an adjacent car park. Due diligence showed that actually only two belonged with the premises. The local council offered a third parking space at a special low annual rate to rectify the issue. The buyer was not happy and withdrew their 70K offer at the last minute. 

Criminal damage

The night before exchange of contracts on a local store, robbers drove a stolen vehicle into the shop front and stole an empty ATM machine. The incident was reported to the Police and the robbers apprehended. Unfortunately the event made local TV, which the buyers saw and pulled out.

Eureka moment

After exchange of contracts, the buyer of a pound shop realised the enormity of the business he had agreed to buy. It dawned on him that to achieve sales of £17,000 per week he would have to move at least 17,000 items of stock – something he wasn’t willing to do. That eureka moment and reality check cost him £50,000 in compensation.

A simple misunderstanding

The sale of a village store in Somerset was close to completion when the purchaser saw news of flooding in the region. Despite the store being on top of a hill, nowhere near a river or the flooded area, the buyer pulled out of the deal for fear of future problems.

Permission to fail

On the eve of completion for the sale of a large brewery worth more than £1M, we received a call from the bank. It had come to light that the building did not have planning consent to be a brewery despite having traded from their location for 23 years. The chief solicitor for the local council tried to intervene but failed to satisfy the bank that all would be resolved and funding was withdrawn. The deal collapsed.

Painting by numbers

A large oil painting themed to match the business name took centre stage in the décor of a cafe. It was not expressly excluded from the general list of fixtures and fittings, so the buyer rightly assumed it would remain. On discovering that the vendor intended to keep the painting and remove it from the business, the deal was almost lost. The vendor had to choose between keeping the painting or face a hefty price reduction from the buyer who saw the artwork as an integral part of the business.

These stories teach buyers one simple lesson: enter into a business purchase with your eyes wide open. Check all the sale particulars, carry out due diligence and draft in experienced experts where you need it.

For sellers, it teaches us that full disclosure is essential on all aspects throughout a deal and perhaps compromise is needed to keep a deal alive.  Again, using experienced experts where you need it can help to anticipate, identify and find resolutions where possible.

But sometimes you cannot predict what may lie ahead. Sadly, sometimes a purchase is not meant to be. The earlier you can discover this, the less time and costs are wasted.