Blog | Are Cold Feet Really the Issue? How to Avoid Failed Transactions.
A closed deal is the commonly understood objective for owners selling or buying a business. Yet M&A advisors consistently experience a high rate of failed transactions. Axial recently published a very useful article using data from their members which identified key reasons deals failed in 2022. Kaitlinn Thatcher writes,
“The main event was an all too familiar mix of seller financial under-preparedness, unsuccessful renegotiations post-diligence, and seller cold feet. Cold feet happen and are hard to remedy. Financial under-preparedness is more avoidable.”
Are Cold Feet an Adequate Explanation?
“The owner got cold feet” is a colloquialism M&A advisors use to explain a phenomenon that appears irrational. True to their expertise, most M&A advisors consider this a sufficient explanation and rapidly move on to what is “concrete” and “measurable” such as financial preparedness that can be viewed in spreadsheets. In so doing the root cause of many hundreds of millions of dollars of failed transactions is left in the “cold feet” graveyard.
Resorting to a common colloquialism used to describe the psychological phenomenon is not the only option. It is in fact completely inadequate and the curious advisor (buy and sell side) could see it as an opportunity to gain a valuable competitive advantage by knowing how to identify, describe and manage “cold feet” before they happen.
Psychometrics are now widely used throughout corporate America. The annual market for these tools is now estimated at $2BN US. From hiring to team building to corporate coaching, the value of using scientifically designed psychometrics is standard practice. Experienced advisors know buying and selling a business is an emotional journey for the owners they represent. Until now there has not been a way to measure the psychological attributes that can help advisors better prepare their owner clients for the experience.
Psychometrics for Business Owners
Clear Water Insights built the Owner Transition Profile for just such a purpose. It is a scientifically validated instrument that measures entrepreneurial role identity fusion, openness to change and communication styles. These variables are indicators of how an owner is going to respond the sale process. With this essential reporting in hand advisors can make more sound judgments for how to guide the owner to a successful transaction or know when the owner Is not ready for a transaction before investing time and money only to find the owner has “cold feet”.
So if you are an advisor reduced to describing a failed deal as “cold feet”, start a conversation with us today in order to move from colloquialisms to instead clarity and confidence.