My gut says…
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Curious if anyone has walked away from a deal just based on gut feeling? We have some small reasons we are uncovering during DD but it doesn’t seem like enough to really say no. I just don’t have a great feeling…
I think it depends on what category those “small reasons” fall into. If it is cultural differences or attachment to specific ways of working, and the goal is to completely integrate them into the parent company, those could be dealbreakers. If it is lack of maturity, process, or systems, then I think these are much more easy to overcome through a well thought out and prescriptive integration plan. Although gut feeling should be noted, hopefully your DD process has a framework to identify how those feelings can be noted quantitatively. For example, if company culture prevents full integration, how does that translate into opportunity cost, and would it then be considered a failure against your KPIs for success? Hopefully that helps you steer your feelings, which are probably valid, into facts that can be used for decision making.
There have certainly been times we have slowed the pace of a deal due to a gut feeling, but as an advisor, we always have to provide a tangible explanation to client. Generally, the gut feeling for me has arisen out of one party being unresponsive or acting standoffish to requests for information.
My gut is telling me to walk away from the current acquistion i’m working on. It’s only small but a good strategic acquisition. The earnings on paper stack up but as we undertake DD there are more and more red flags. The CEO wants to continue given how strategic it is but my gut tells me the earnings just arn’t there. I’ve asked for aanother firm to conduct financial DD to confirm my thoughts so i can present this to the Board to firm up my “gut”
Historically it have happened, even the famous Warren Buffett have done so in the past. It could be due to not having compatibility between two personalities.
The gut feeling wouldn’t apply in my organization, we’re a large global firm and require engagement on multiple levels with multiple groups represented. We wouldn’t have the flexibility to walk away on that basis, and instead have exhaustive analysis to support the decision. Valid question though, I agree with the earlier comment regarding personalities. The deal may look great on paper but a key individual could negatively impact the integration.
There will always be some apprehension and level of anxiety associated with unknowns and the big changes that an M&A often brings to a company. However my advice would be to apply a methodical approach and ensure that all items check out ok including the right due diligence for finances, HR, commercial and others.
Short answer is no, but we typically will discuss what the reasons are contributing to the gut feeling and provide recommendations accordingly.
No not me or in my organisation – to be in or out must be backed up with fact. At least look for evidence to what your gut tells you. In fact I only move away from targets based on gut feel from the initial stage of building a long-list of potential targets – but I know I will always need a factual reason as to why I turned away.
As a consultant, I have not walked away from a client based on gut feeling. In my private equity days, we definitely tried to quantify that “gut feeling” into testable hypotheses – sometimes it would mean site visits, interviews with a potential key person risk, etc.
I believe one has to trust in the gut feeling, BUT to the extent that you use your gut feeling to find this objective reasoning to walk away. And soft topics, as copany culture, typical behaviours etc are good enough reasons too. I am afraid in many cases these soft topics are disregarded, and considered to be a “gut feeling”. Typically becasue you can’t formalize it easily as balance sheet, legal implications etc technical matters.
For those practitioners, what about a gut feeling from the target company. A private company I know was recently acquired in an auction. I imagine there could be a lot of unknowns in such a process and a hope that a family culture, smaller private company is going to be acquired by a company that is a right fit. What if through the auction, the winner is someone they know or gut feeling would be a very bad match? Curious if anyone has seen this from the target company’s perspective.
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