Reasons Why Some Businesses Do Not Sell

By Mark Borkowski

With over 34 years in the industrial marketplace, we have seen many successes and some initial failures when representing company owners who could not sell their businesses. In these latter examples, they learned a hard lesson and, fortunately in some cases, were able to eventually transact.

Some of these issues are unique to Canadian businesses but most apply across industries. Here are seven reasons why they encountered failure the first time around:

1. Inadequate financial reporting and lack of consistent attention to appropriate financial metrics. More than once, we have encountered sellers that neglected to regularly monitor financial performance and then make adjustments that could substantially improve their results. They managed a “lifestyle business” that was focused on short-term personal compensation (aka excess compensation), not the long-term value of their life-long investment.

2. The market was changing and they didn’t adapt despite ample warning. A good example of recent times in the business has been the many reasons why business has changed. Most markets give considerable warning, but it can be hard to change when one is attached to seasoned way of operating.

3. They watched their business performance spiral downward and then decided to sell it as it approached the bottom. The psychology of distress often leads to the delusional thinking that their business will turn around if they “wait it out.” That rarely happens without significant corrective action.

4. The company was in a highly regulated environment that was subject to change. Though this issue can apply across industries, it is a particular issue for any businesses, in which contracting regulations can vary dramatically by province. If there is change in the wind, the risk appears very high even for heretofore successful companies.

5. Management turnover was high and salaries may have been below industry standards for a significant period of time. Most buyers have their antennae attuned to this and see it as warning of even greater problems for the company. Human capital can ultimately lead to success that financial capital alone cannot achieve.

6. Union shops and other restrictive employment agreements were in place. Investors in unionized companies are typically quite wary of a unionized workforce and often attribute their presence to poor management. This is not a judgment about unions, but a concern about the agility of the organization for future development.

7. The company location was not suitable for growth. Most buyers expect to expand their acquisition to increase their ROI, especially in the case of private equity investors. No perceived scalability equals no acquisition.

Mike Babcock, a Stanley Cup and Olympic champion coach, and now the man in charge of the Toronto Maple Leafs, once wrote that “failure isn’t fatal, but failure to change might be.” In the situations described above, we have seen numerous owners honestly assess their circumstances, re-engage with their companies and, after some time, successfully close a transaction. The necessary “change” that Babcock spoke of was always apparent. The difference was the courage and discipline applied in the face of an original disappointment.

Mark Borkowski is president of Mercantile Mergers & Acquisitions Corp. Mercantile is a mid-market M&A brokerage firm in Toronto. Mark can be reached at