Worst deal you lost?
What’s your worst experience of losing a deal? Hundreds of hours of work with nothing to show for it in the end? I find this one of the toughest part of the job...
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Every lost deal hurts. One that comes to mind for me is a deal we pursued as an add-on acquisition for one of our portfolio companies. We pursued the deal on many rounds over the course of a year and a half—first as a proprietary deal, then in an auction process when the proprietary discussions fell through, then again in a different, more limited brokered negotiation setting, and so forth. The deal would have been an absolute slam dunk and massively synergistic. Furthermore, when we lost the deal, we had all our diligence complete as well as a purchase agreement fully drafted, iterated on with the seller, and ready to execute.
It sucks when you lose a deal that you’ve labored away for months on. But I think you feel somewhat better when you are without regret after losing the deal. For me, we lost that deal to a sponsor who paid an egregiously high price. We had already stretched ourselves on valuation as far as we could, and, when the other sponsor hit a bid price that exceeded our walk-away valuation, we felt comfortable walking away from the deal.
As much as closing a deal can be exhilarating, I think it’s important to keep in mind that half the job is really just not doing the deals you shouldn’t do.
I very much agree with Pro Forma Run Rate. I suppose at this point I've become pretty emotionless towards the deals that don't close for one reason or another. I've had deals blow up that were literally days from funding and I've had both buyers and sellers walk for what feels like the silliest reasons. Hate to say I almost expect it and then get pleasantly surprised when things go well!
With the benefit of hindsight, there are absolutely deals out there that I wished I had done. At the same time, there are also lots of deals that I wanted to do, got outbid on, and they turned out to be terrible. For those, I convince myself that I actually didn't want to do the deal so I can feel better about myself... (joking .. umm .. okay maybe not)...
Agree with both Pro Forma Run Rate and CompaBanker. The work "lost" sucks, in particular, from a personal perspective (any change in plans due to it or missing events, late hours, etc.). The feeling of winning is missing as well. Starting on a new project drained requires fortitude.
However, as CompBanker writes, with time, I kind of developed this reservation to whether a deal ultimately closes or not. Full effort, yes, but some caution to that fact of life (for one seller, only one closes and a few will go empty-handed). I can only emphasise what Pro Forma Run Rate writes about avoiding (sometimes unwillingly, but with hindsight luckily) bad deals (or overpaying, or over stretching etc.).
From my end, I worked intensively on a "great" and complex deal. Had to postpone honeymoon (not my proudest hour. You learn with time). We discovered some red flags during DD, which we thought needed material discount on price, but that we can mitigate/deal with them. Ultimately, price was the issue and did not close. Fast forward, the red flags brought the company to its knees and, weren't it for the very powerful owner -still the Seller at that time- it would have been severily wounded. So kind of dodged a bullet.
Seems like this an huge understated drawback of PE. The industry gets more competitive with capital flow and you end up spending more of your days not closing deals vs. 10-20 yrs ago when you found a target you liked, you could actually execute. I work at a distressed HF and always wonder how these blown up credits ever got syndicated in the first place and now start to see its simply sponsors getting into egregious bidding wars. I only see the winning bidder getting his equity blown out but I can't imagine the day-to-day for a junior and how much it sucks being the other 5 in a competitive process that never won the deal (though good for their LPs not to overpay).
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