When integrity is lost, it’s almost impossible to get it back. Sellers who have misrepresented their company are dishonest. They are no longer trusted. Any potential purchaser will lose confidence in the seller and walk away from the deal, or try to buy it at a very low price.
The following is an excerpt from Doug’s book “There’s Always a Way to Sell Your Business”
When It Rains, It Pours
Many years ago we were selling a large manufacturing business that was housed in a 150,000-square-foot building. It was situated on ten acres in a small Manitoba community. The business was operating at about 40% of capacity and was barely profitable. It had substantial assets, but selling these for a reasonable value with low profits was going to be a challenge.
One thing that intrigued me was the fact that the owner insisted that we insert into our profile of his business the fact that they had a special roofing program.
There had also been a spill of a toxic chemical that was cleaned up. They had an engineer’s report to that effect.
We searched the world for a buyer. We found a Japanese company that saw the opportunity to put additional production through the plant. We reached a tentative agreement subject, of course, to due diligence. For the Japanese firm, due diligence was important – and they were extremely diligent.
They arrived with a team of engineers to go over the equipment in fine detail. On the third day there was a severe thunderstorm. The rain was teaming down. One of the buyer’s engineers came into the boardroom soaking wet. His boss said to him, “Don’t you have the sense to stay inside when it’s raining?”
“I was inside,” the engineer protested.
We all went to see where he was when he got wet. Beside one of the machines, a steady stream of water was pouring through the roof.
“What about this roof program you’re so proud of?” the vice president asked.
Our client sheepishly said they were a few years behind.
Nonetheless, the Japanese company was still quite interested in proceeding with the transaction. But they no longer trusted the client to be truthful. His integrity was destroyed. They now double-checked and triple-checked everything they were told. They discovered many irregularities. They were still interested in spite of the irregularities. Then they brought in drilling rigs to test the property for toxic chemicals.
Guess what? That toxic spill had been cleaned up only locally around the spill point. Parts of the property were so badly polluted that the purchaser walked away. The deal was never completed.
I believe that had the client been forthright about all of the issues and not tried to hide anything, the sale would have been consummated because the Japanese company really wanted that facility.