Pacifici: SMB deals typically die in financial diligence or from deal fatigue
Eric Pacifici · Startup Acquisition Stories With Eric Pacifici of SMB Law Group · Jun 26, 2024 · at 9:33
Eric Pacifici, founder of SMB Law Group, explains the two primary stages where small business acquisitions collapse during diligence and closing.
0:00 / 0:41exact quote · 41.9s
720p mp4 · rendered on demand · StarZero watermark
“Generally speaking, your deal is going to die really in one of two stages. It's either going to die in the lending process, in the quality earnings process, you know, your financial diligence, you've gone under LOI, you've now lifted the hood, and you're seeing things that are a problem, you know, or you're realizing that, hey, you know, it was represented that these were two customers, but really they're actually one, and so, you know, customer concentration isn't 20%, it's more like 45%, you know, and now I've got to, you know, think more seriously about walking away. We see a lot of that. We also see a lot of really spectacular failures, right, where people hold on for way too long, desperately trying to get the deal done, sellers desperately trying to get the deal across the finish line, but they're getting cold feet, they're getting emotional, they've got deal fatigue, they're sick of compromising.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from Eric Pacifici
Pacifici: Generalist and Big Law attorneys poorly serve the $2M–$25M market
“Most folks who do M&A in the two to fifteen million or two to twenty five million dollar enterprise value space are either general lawyers who don't know M&A at all, do a really bad job for their clients.
We see that a ton on the sell side, or they're really g…”
Pacifici: Earnest money deposits do not belong in small business M&A
“Earnest money deposits, for example, is not an M&A concept. Very Common in real estate. Obviously, if you ever bought a house, put down some earnest money, and it makes a lot of sense there. It doesn't make sense in in small business M&A, but you've got a lot …”
Pacifici: Hiring a Big Law firm for SMB M&A is counterproductive
“Having a high powered corporate law firm on your side, it's like bringing a bazooka to a night fight. It doesn't make a ton of sense.”
Pacifici: Small business buyers often seek exits within 18 to 48 months
“What we're seeing is there's a relatively fast life cycle. You know, guys and gals will go out and buy businesses when they're 35 and fresh out of business school or whatever, and then 18 to 24 to 36 to 48 months later, they're oftentimes looking to sell.”
Pacifici: Ex-Wall Street buyers struggle in SMB deals by skipping QoE providers
“I see a lot of really sophisticated people financially struggle with the financial diligence piece of it, because they come in, you know, they've got 10 years of experience at Goldman Sachs, right? And they're like, I don't need a higher quality of earnings pr…”
Pacifici: SMB Law Group closed $950M in enterprise value last year
“Well, last year we closed about nine hundred and fifty million enterprise value. The amount that we, those are closings. The amount that we worked on is in the several billion and then in terms of sheer number, maybe a couple hundred transactions that we've wo…”