Multiple studies concerning M&A famously stated that over two thirds of M&A deals failed to enhance value with 43 percent being value neutral. Despite that, experts like to point to the manifold advantages that a successful merger can produce. In today’s fast changing business world, it is not only the traditional benefits, like increased economies of scale and improved market share, that make acquisitions appealing. M&A is quickly becoming the way for larger firms to acquire innovation and adapt to rapidly evolving markets.
So, how does one make sure to reap the benefits of a successful transaction while avoiding the pitfalls that many other companies fall into? The easiest way is to hire experts that will help you with the process but avoiding these three main mistakes will put you far ahead of your competition.
Mistake 1: Insufficient Due Diligence
The due diligence process no longer stands only for just a financial assessment of a potential acquisition target. While these factors continue to be as important as they always were, experts have started to realize the importance of intangible assets when it comes to successful transactions. When you are analyzing a company, try to also consider factors like corporate culture, reputation, strategic location, business connections, etc. You will not find them in a balance sheet but they could be the ones that determine the success of the transaction.
Mistake 2: Focusing on price and not terms
M&A deals are usually highly complex with multiple negotiable variables that can change the outcome of a deal. Even though valuation and price are important, one should focus on deal structure and other terms with similar attention and scrutiny.
Mistake 3: Poor (or no) Post Merger Integration
It is a common misconception that the work ends once the deal has been signed. Cultural disparity and post-integration hurdles are in fact the most cited reasons for acquisition failures. Even if performed thoroughly, the due diligence process for mergers & acquisitions is often based on assumptions. It is paramount to proactively work on seamlessly integrating the different cultures and processes of the companies. Ideally, a post-merger integration strategy should be decided upon even before the actual deal is signed.
Photo Credit: Alex E. Proimos