Parties to a transaction do not always realize the extent to which time is of the essence in closing a transaction. I will give three cases which illustrate why time is so much of the essence, then draw certain conclusions:

Case #1: In 2001, I was working on a major telecom transaction, where numerous offers arrived on the company we were selling. After a process that had taken over half a year; the best offer was still $20 million short of our client’s expectations. After weeks of very hard bargaining, the gap was reduced to $5 million. The momentum was promising. And then something extraordinary happened: September 11. As result of the Twin Towers disaster, financial markets were greatly perturbed. The gap was back to $20 million. And the whole transaction was called off.

Case #2: I also heard of a case where the last of several signatories to a deal was to sign the papers on a Friday. He was not feeling well and asked to defer until Monday. The only problem was that the signatory passed away on the weekend. No one else in the company was willing or able to take responsibility and sign the deal. Once again, the deal fell through.

Case #3: The due diligence of a particular deal dragged on months longer than what was normal. Once the due diligence issues were resolved, the purchaser of the company noted that there had been a major fluctuation in currency which greatly diminished the value of the company in question. While a compromise on valuation was eventually reached, and price renegotiated (it was touch and go: the deal could just as easily have fallen through), the delay and renegotiation still cost the seller millions of dollars.

As the above cases indicate, there are all kinds of uncertainties that may affect a deal. The above cases all point to the same conclusion: when there is an active negotiation on a transaction, negotiations need to take place with maximum speed, and none of the parties should rest until closure of the transaction. This is one of the reasons why M&A transactions tend to be ‘round-the-clock marathons. (Or perhaps a party has a vested interest in drawing out the time line, to take advantage of such uncertainties?)

The above cases also illustrate why sellers of companies need to be fully prepared before going to market, whether to raise additional capital, find a strategic or financial partner, sell a minority or majority interest.

Where they are not fully prepared, the companies are unnecessarily opening themselves to a lengthier-than-necessary sale process. Better to have a thorough information memorandum, data room, financial model and management presentation fully prepared before going to market, thus minimizing the amount of time that a company is actually on the market.

In today’s financial market, and for the foreseeable future, there is likely to be a huge amount of volatility and uncertainty.

Whether it’s the potential of the US Congress not lifting the debt ceiling and the US defaulting on payments, or the default of Greece, or any number of risks which affect today’s financial markets, an event can happen tomorrow or next week which may close your financing window, the same way 9/11 closed the financing window in the first case.

Today may not be the best financing market – many people are putting off financing or transactions until markets improve. But if you are counting on today’s financial markets to raise cash, don’t take it for granted that markets will improve. Until the agreements are signed and money changes hands, virtually any deal can fall through.

In most cases company owners will be best-served by taking a company to market only once preparations are fully complete, and then close the transaction as quickly as possible.