It is no secret that potential mergers and acquisitions (M&A) are complex business agreements that take considerable time and analysis to bring to fruition. The truth is plenty of M&A specialists invest dozens of hours in discussions pertaining to a potential merger or acquisition only for the deal to fall apart amidst negotiations. Let’s take a look at why mergers and acquisitions sometimes fail.
The numbers are central to a potential merger or acquisition culminating in an agreement that both parties find mutually beneficial. Inaccurate financial figures are deal breakers. If the figures or information shared with the potential business partner or purchasing company are inaccurate, the deal is unlikely to come to fruition. Incorrect data has the potential to misrepresent revenue, underestimate the cost of support, and overinflate potential growth across.
Every business owner considering a potential merger or acquisition should be aware that all parties interested in being acquired, buying out another company, or merging with another business will perform in-depth quantitative analysis after the letter of intent (LOI) is provided. Quality of earnings reviews are an in-depth analysis of financial figures to guarantee the accuracy of all data provided at the negotiating table. It is only after this analysis is performed and the numbers are verified that the purchase price can be confirmed, altered or rescinded in confidence.
Insufficient or Fractured Communication
M&A is an arduous process that has the potential to chew up several months’ time or even longer. The worst-case scenario is a negotiation period lasting an entire year or possibly longer. Communication is essential to expediting this process and ensuring both sides are on the same page. Communication is particularly important in the context of the LOI and the point of closing.
If communication is not clear and coherent, the potential merger or acquisition might end up breaking down to the point that neither side desires to move forward. Communication should be transparent and consistent from the initial talks all the way through the merger or acquisition’s closing. Both sides should make their expectations perfectly clear, ensuring each party’s priorities are properly aligned. When in doubt, lean on an M&A consultant to facilitate ongoing communication that ultimately proves mutually beneficial to both sides.
Business Owners Who Aren’t Actively Involved
Though no business owner should attempt to complete the entirety of the merger or acquisition negotiation and completion on their own, some involvement will be necessary. The M&A deals that work out in the end tend to be those with active owner involvement. The moral of this story is delegation to the proven M&A specialists is certainly important, yet there is still a need for the business owners to provide input from the initial talks through negotiations and all the way up until the deal is culminated.
Inadequate Representation in Negotiations
As noted above, a merger or acquisition is not a DIY project for a business owner. Rather, such an agreement is a significant milestone for both businesses. The quality of the M&A consultant overseeing the negotiations has the potential to make or break the deal. Put your faith in a proven M&A specialist and you will rest easy knowing professionals with a track record of success are hard at work doing the same for you and your business.
The subtleties of the M&A contract certainly matter, yet overemphasizing semantics, protections, or other points that are common in such deals will waste time and potentially steer the other party in another direction. Perform your due diligence before selecting an M&A specialist and you will be able to move forward with a consultant in full confidence.
There is a certain amount of overlap across executives and managers after every merger and acquisition. The potential for redundancy is stressful for employees in both companies. Incompatible leaders make the matter even more complicated. There is an unspoken social agreement between the leaders of businesses that merge or become acquired. The discussion of how the newly-formed business will evolve in the context of management and leadership at the executive level should be discussed before the deal culminates.
Everything from specific responsibilities and duties to power in the context of human resources, financial compensation, budgeting, product/service pricing, and contracts should be discussed in-depth. These discussions set the stage for the merger or acquisition to smoothly transition to the closing point.
The integration of the two businesses might seem like a surmountable challenge when discussing the deal at the negotiating table, yet reality often proves quite different than theory. An in-depth analysis of both organizations will identify critically important employees, projects, products/services, and potential areas of overlap.
Each of these problems must be identified prior to moving forward with the merger or acquisition. Otherwise, complications pertaining to integration will arise. This can potentially cause internal strife and even prevent the merger or acquisition from forming.
Integration in the context of M&A also applies to the cultures of the two companies. It is rare for there to be a seamless cultural overlap between businesses that merge or acquire one another. Culture in the context of business extends well beyond the use of cubicles versus open office layouts and preferred methods of communication. Culture is especially important when two businesses in different geographic locations become one. Prepare accordingly with the guidance of an experienced M&A consultant and the chances of a seamless corporate cultural integration will be that much better.
Our recruiters and consultants are here to help with your merger, acquisition, or sale. Reach out to our experienced team today to find out more abouthow our comprehensive strategies and guidance can help advance your bottom line. You can contact us to learn how we can help your business grow.