Merger and Acquisitions Mistakes Businesses Need To Avoid

The economy may be uncertain, but that doesn’t mean that you can’t help your business and portfolio grow. In fact, it might be just the right time to take advantage of an attractive price or some investment to keep your business afloat. However, most studies show that the vast majority of acquisitions and mergers fail. How do you avoid the pitfalls of buying or selling another company? Here are some mistakes to avoid so you can find success with your deal.

Not Performing Adequate Due Diligence

Conducting thorough due diligence might be the most important part of a merger and acquisition process. This involves examining every aspect of the other company to make sure that you understand exactly what you’re getting into. You will most likely want to get the help of an investment banker. Checking out a wall street prep guide can also give you an idea of how to proceed as well. Not performing due diligence can lead to disaster, from huge financial losses to outright bankruptcy. Taking shortcuts at this stage is simply not an option.

Part of your due diligence should be conducting a SWOT analysis. SWOT stands for strengths, weaknesses, opportunities, and threats. By conducting this assessment you can determine where your business aligns with the other, and where there might be concerns. It is also crucial to examine the management strengths, barriers to competition, and the structure of the organization.

Letting Your Heart Rule Over Your Head

If you’ve watched movies and television, you know it’s common to hear a character say “it’s just business.” Make sure that you always remember that. Too many investors let their hearts rule their actions instead of their heads. Getting too excited about making a deal might cause you to ignore the reality of the situation. It might not make sense financially or legally, but if you ignore warning signs and push ahead, the deal could fall through or it might end up being much more costly than expected.

Lack of Succession Planning

During a merger or acquisition, planning for the next steps is so important for a successful changeover. There will no doubt be upheaval, and you will need to have a strategy for a successful integration. Your goal should always be for as smooth a handover as possible. This will not only maintain production, but it will also help with employee morale. High-value employees may decide to leave, so you need to either have a plan to retain them, or start looking for replacements, even before the deal is closed. You may also need to migrate data from one company to the other. Assign at least one individual, or possibly a team if the merger is large, to develop and implement a successful and transition plan so that process is as seamless as possible.

Failing to Identify Synergies

Synergies are the areas where you can benefit from a merger. It might be that you see potential for an increase in revenue, a reduction in costs, or even more efficiency with staffing and your infrastructure. You need to be diligent in identifying synergies and accounting for them in your valuation of the deal. Sometimes investors fail to properly account for what the synergies might be, and it leads to additional costs, or an unsuccessful merger or acquisition. If you overestimate the potential revenue gains, for example, then you could find yourself having difficulties. You must also make sure you properly value the additional costs and inefficiencies, or your return on investment will suffer. Cost savings may look attractive at first glance, but to achieve them, you may need to make an additional investment, and that should be factored into your assessment of the deal.

Being Impatient

Many of the issues that can arise with a merger or acquisition can be chalked up to impatience. Moving too quickly can be disastrous for everyone involved. If you find yourselves saying you will talk about details later, or if you feel that you can work out some sticky points after the deal is done, then you need to take a step back. As an acquirer, it could be that you happen to have cash to invest and are ready to move to grow that investment. As a seller, you might be anxious about your financial future or simply need quick cash. In either case, the situation is ripe for rushed decisions which can lead to a bad deal. The seller may accept far less than they should, or the buyer might sign off on the deal and miss red flags that otherwise would have scuttled it.

Not Realizing That Every Deal is Unique

What worked for you in a previous deal might not work in a future one. Every company is different, from their revenue streams, to their culture, to their staff. With so many varying factors, you should never make assumptions based on past experiences. In fact, things could be completely the opposite the next time around. Part of your due diligence should be identifying the ways you can make your deal work in that specific situation.

Ignoring Regulations

For any business deal, you need to always keep possible legal and regulatory considerations in mind. Mergers fall through all the time when one or both sides do not properly understand what compliance is needed. If any part of the deal does not adhere to regulations, then the whole thing can fall apart, cost substantially more, or be subject to long delays.

The time might be ripe for you to make an investment in another company, or to sell your business. However, make sure that you have all of your ducks in a row before, during, and after the process is completed. Talk to an investment banker, and consult a wall street prep guide for help.Most important, if you want a successful deal for all parties, then do your best to avoid these mistakes.