Failure is usually predictable
Processes rarely collapse because of something genuinely unforeseeable. They collapse because a known weakness was not addressed, or because a fact that management considered immaterial turned out not to be.
Here are the issues we encounter most often, roughly in order of frequency.
1. Intellectual property not owned by the company
Code written by contractors without assignment clauses. A patent still in a founder's name. Technology developed under a university arrangement with rights retained. Each of these means the company does not own what it says it owns, and each requires the cooperation of a third party to correct — cooperation that becomes expensive once that party understands the transaction context.
2. Financial statements that do not survive audit
Revenue recognised too early, costs capitalised improperly, or a general ledger that cannot be reconciled to the bank. Where the restated figures differ materially from what was presented, credibility is damaged even if the underlying business is sound.
3. Undocumented ownership
Shares promised verbally. Transfers never registered. A shareholder who cannot be located. Convertible notes whose terms conflict. The register must be reconstructible from documents, and frequently it is not.
4. Undisclosed related-party arrangements
These surface in the audit rather than in management's disclosure, which is the worst way for them to appear. The arrangement itself is usually manageable; the failure to disclose it is what causes damage.
5. Sanctions exposure
A shareholder, an intermediate holding entity or a beneficial owner connected to a sanctioned person or jurisdiction. This is generally terminal, and it is discoverable on day one with proper screening.
6. Litigation that was described as immaterial
A dispute characterised internally as a nuisance turns out to carry material exposure, or a threatened claim becomes an actual one during the process. Litigation must be disclosed fully at the outset, including matters that have not yet been filed.
7. Customer concentration or contract fragility
Revenue concentrated in a small number of customers, on contracts that are short, terminable at will, or contain change-of-control provisions allowing termination on a transaction. The last of these is often discovered only when counsel reads the contracts.
8. Regulatory findings never remediated
In licensed sectors, an examination finding that was acknowledged but never fully addressed. The regulator's file is available; the company's explanation of it needs to match.
9. Insufficient preparation budget
The company runs out of money mid-process. Advisers stop work, momentum is lost, and restarting costs more than continuing would have. This is entirely foreseeable and entirely avoidable.
10. Problems with the vehicle
Diligence runs both ways. The public vehicle may carry undisclosed liabilities, a difficult shareholder base, an unresolved regulatory history or a share structure that makes the combined entity unattractive. A private company should conduct its own diligence on any vehicle proposed to it, using its own advisers.
The common thread
Almost every item on this list is visible months before a process begins, to anyone who looks deliberately. That is the entire argument for a structured readiness assessment: not to guarantee an outcome, but to ensure that if a process starts, it starts with the problems already known and, where possible, already solved.