Why Some of the Best Deals Never Make It to a Term Sheet

The deal that started before anyone called it one.

Most discussions about selling a company begin too late.

They begin after the owners have decided to sell, the board has authorized a process, and buyers already have access to a banker's materials and a data room. By then the company has formally entered the market, the timetable has started, and every unresolved issue competes for attention under growing pressure.

Yet some of the strongest acquisition opportunities begin long before any of that. They start with sustained industry awareness and a strategic buyer's quiet interest in a business that isn't for sale. A conversation at a conference becomes a periodic exchange. A commercial relationship reveals complementary capabilities. An executive who has followed the company for years finally asks whether its owners would consider a different future.

No term sheet has been drafted, but a consequential deal conversation already has.

A formal process and a genuine opportunity are not the same thing. An auction creates competition and supports price discovery, but can also attract buyers more interested in winning a process than owning the company. An off-market approach can produce different value when the buyer has a specific strategic reason to pursue the business and the seller stays prepared enough to assess it without becoming captive to it.

Origination Begins Before Intent

A strategic acquirer rarely starts thinking about a target when the first call is placed.

Serious buyers hold views about the industries, capabilities, and customer segments they may eventually need, and their corporate-development teams study companies that could fill those needs long before any transaction is imminent. Some of that interest is opportunistic, built around a capability gap. Some is defensive, aimed at securing a strong regional player before a competitor does.

McKinsey's "A blueprint for M&A success" describes proactive deal sourcing and opportunistic deal evaluation as parts of a disciplined acquisition strategy, built well before any specific target is identified. The best-prepared buyers don't wait for an offering memorandum to tell them which companies matter. They already know where their strategic gaps are and which businesses might close them.

The seller may experience the eventual contact as an unexpected inquiry. From the buyer's side, it's often the next step in a long observation period, shaped by revenue growth, customer loyalty, management depth, proprietary capabilities, market reputation, and operational consistency.

This is why deal origination deserves more attention from mid-market leaders and other business owners. A company's transaction prospects depend not only on what it presents during a sale process, but on what buyers have already observed before the company ever considers selling.

Relationships Create Access, Not Obligation

Relationships do not guarantee a transaction, nor should every industry connection become a disguised sales effort. Their strategic value lies in creating informed access.

When executives know one another through trade associations, commercial partnerships, board service, or industry events, an initial exchange begins with context strangers lack. Each side may already understand the other's reputation, priorities, and operating style. That familiarity doesn't replace diligence, but it can sharpen the questions asked at the outset.

The strongest relationships preserve choice. A business owner should be able to hear an expression of interest without signaling eagerness, creating false expectations, or surrendering control of the timetable. The first conversation isn't for negotiating a sale, it's for understanding why the buyer is interested, what strategic problem the acquisition might solve, and whether the combination deserves further consideration.

Confidentiality matters especially at this stage. A premature disclosure can unsettle employees, customers, lenders, and suppliers before the owners have even decided whether the opportunity is credible. Leaders should decide in advance who may receive an approach, who must be informed, which advisers should be involved, and how internal communications will be controlled.

An informal beginning does not justify informal discipline.

Strategic Buyers May See Value That the Market Does Not

A broad market process often encourages buyers to compare the company with other available assets. A strategic buyer may view it through a far more specific lens.

The company may provide access to customers the buyer has struggled to reach, technology that shortens a product-development cycle by years, a management team with expertise that's hard to recruit, or facilities, licenses, distribution relationships, intellectual property, and geographic presence that solve a problem organic growth can't solve in the buyer's required timeframe.

That value is not necessarily visible in a conventional multiple of revenue or EBITDA. It emerges from what the business enables under new ownership.

McKinsey's 2026 analysis, "How strategic buyers can outperform financial investors by building a 'synergy muscle'", explains that strategic buyers pursue acquisitions to enter markets and gain scale in ways a standalone owner or a purely financial bidder can't replicate. A buyer with a credible path to those benefits may justify value that another bidder can't.

This doesn't mean every strategic approach carries a premium. Some buyers seek exclusivity precisely to avoid competition. Others overstate strategic fit early, then use diligence findings to reduce price or change terms later. Owners need enough market knowledge to tell a genuinely differentiated offer apart from an attempt to acquire a valuable company without exposing it to other bidders.

The central question isn't whether the buyer calls itself strategic. It's whether the combination creates identifiable value and whether the seller can negotiate a fair share of it.

Readiness Protects Optionality

An unsolicited approach often creates a dangerous emotional mix, feeling validating, urgent, and confidential all at once. Owners who have never discussed their objectives may start reacting before they've established what would make a transaction acceptable.

Deal readiness provides the discipline to slow the decision without losing the opportunity.

That readiness begins with alignment among owners and governing leaders on whether the company is intended for long-term ownership, eventual succession, partial liquidity, recapitalization, or a full sale, and on which considerations matter beyond price: employee continuity, leadership roles, retained equity, cultural fit, brand preservation, closing certainty, and the treatment of important stakeholders.

Financial and operational preparation matter just as much: reliable monthly reporting, defensible earnings, clear customer and supplier data, documented intellectual property, current contracts, sound governance records, and an organized view of legal and regulatory obligations. All of it lets leaders evaluate a buyer's interest with far more confidence. A business that depends heavily on one founder or a single key executive raises a related concern for a buyer weighing how transferable the company's value really is, independent of who runs it today.

PwC's "When growth isn't enough: What buyers really look for in an M&A" warns that fragmented information, weak systems, and inconsistent reporting become serious obstacles once a private company enters a sale process, doing more than slow diligence: they reduce a buyer's confidence and shift negotiating leverage to the other side. There's a second cost: a leadership team assembling years of clean records under time pressure while still running the business day to day gets pulled away from the operating work that made the company attractive in the first place.

Rich Grant, director of business development at Northlane Capital Partners, described what separates buyers who get the call from those who don't in a roundtable published by ACG Insights, formerly Middle Market Growth: "staying in touch, following up and staying close to the seller." The same discipline applies on the seller's side. A company that maintains readiness doesn't have to accept an offer. It gains the ability to examine one intelligently.

Exclusivity Should Be Earned

A buyer making an off-market approach will often seek exclusivity before investing heavily in diligence, understandably. It doesn't follow that the seller should grant it quickly. Exclusivity changes the balance of power. Once the seller agrees not to speak with others, the buyer may become the only active source of price information and momentum, and the seller's alternatives narrow, especially after employees and advisers have already invested time in the process.

Before granting exclusivity, owners should know enough about the buyer's seriousness, financing, decision authority, regulatory exposure, integration logic, proposed structure, diligence scope, and timetable to make exclusivity a reasoned exchange rather than a gesture of goodwill.

The seller should also preserve clear exit rights: defined responsibilities, information protocols, deadlines, and termination provisions that prevent a prolonged, milestone-free period from leaving the company distracted while the buyer learns about it without deciding.

A relationship may open the door, but disciplined terms protect what happens after both parties walk through it.

The Term Sheet Is a Choice, Not a Default

An off-market inquiry does not eliminate the possibility of an auction. It creates a choice about process.

Some owners conclude the buyer's strategic rationale, proposed value, cultural compatibility, and execution certainty justify focused bilateral negotiations. Others decide broader market testing is needed to establish fair value or reveal alternative partners. A limited process can offer a middle course, approaching a carefully selected group without a full auction.

Each path carries tradeoffs. A broad process increases competition, but also exposure, management burden, and disruption risk. A bilateral process preserves confidentiality and moves faster, but leaves less market evidence. A limited process may balance both, though it still needs careful coordination and consistent information.

There's no universally superior method, only the process that best serves the owners' objectives, reflects the company's circumstances, and protects the ability to make an informed decision. The mistake isn't choosing one path over another, it's letting the first interested buyer choose by default.

Readiness Is a Leadership Discipline

Deal readiness is often treated as a temporary financial project. It is better understood as an enduring leadership discipline.

A company with accurate reporting, clear accountability, sound contracts, capable management, documented processes, and a coherent strategy isn't merely easier to sell, it's usually easier to govern, finance, scale, and sustain. Preparation for a possible transaction strengthens the enterprise even when no transaction occurs.

That's the deeper value of being ready before the call arrives. The objective isn't to operate perpetually as though the company were for sale, it's to build an organization whose leaders understand its value, options, risks, and strategic direction well enough to respond deliberately when an unexpected opportunity appears.

The strongest transactions don't always begin with a formal mandate or a crowded room of advisers. They begin when one organization recognizes unusual value in another, and years of trust make it possible to act on that recognition quickly. The term sheet may come later. The conditions for a strong deal are usually built long before it.

How ACG Can Help

Aspirations Consulting Group helps organizations strengthen clarity and decision-making during periods of growth, transition, and strategic pressure. When ownership objectives, financial readiness, operational capability, and transaction choices intersect, ACG brings disciplined perspective to the questions that shape long-term value. Learn more at Aspirations Consulting Group.

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~ Jerry Justice

Living to Serve, Serving to Lead™