While most businesses surely enter the M&A process brimming with hopes of maximising their profits and expanding their market share, the truth is that there is also a strong possibility of running into unexpected difficulties. That’s why being able to embark on swift and effective crisis management is so important.
To help you handle any such crises that may arise during your next merger or acquisition, we’re going to explore some of the common challenges you may experience.
We’ve also compiled a collection of must-have insider tips and advice on how to cope with those challenges and any other unforeseen events that may throw up a few bumps in the road.
Without further ado, let’s begin!
1. Outside factors that can affect your target’s value
One unexpected event that can occur early in the M&A process is an internal or external phenomenon that affects the value of an acquisition target.
For example, externally, the country could experience a sudden economic downturn due to geopolitical factors – like a pandemic or a sudden major conflict, for example! – and this could raise inflation and interest rates. This, in turn, can impact your target’s valuation and make it higher.
It’s also worth noting that a catastrophic global event – whether natural or economic – can also seriously impact supply chains, which could dent your target’s profits. This, in turn, can lower their value and make them a less attractive prospect.
Finally, another potential external change could be the introduction of new regulations which would affect the target: for example, new stringent environmental legislation. Again, this may have a negative effect on their effectiveness and profitability.
2. Due diligence mistakes
One of the most common crises that can affect a merger or an acquisition is a failure of due diligence. This mistake can result in serious issues like unforeseen liabilities, a legal dispute or financial difficulties that the acquirer ends up paying for.
Not only that, but your new purchase could also end up losing customers and its reputation due to those problems which you failed to uncover. This, in turn, will impact you as the new owner.
The good news is that these types of crises can be easily prevented by investing in rigorous due diligence. This should involve a multidisciplinary team of legal, financial and industry experts who can examine your target from every angle and make sure that everything is above board and suitable for acquisition.
3. Uncooperative owners
Another unexpected problem you may not foresee from the outset is a lack of involvement and cooperation from the owner of your target.
In some cases, the M&A process may start off smoothly enough, but then the owner may suddenly back off or become inflexible during negotiations. This can happen for various reasons. Perhaps they have a personal problem they need to deal with, such as ill health; perhaps they feel they could receive a better price from another acquirer; perhaps they simply feel disconnected from proceedings, or maybe they feel you are not including them enough in the process and they are frustrated.
The actions you will take to resolve this will depend on the nature of the problem. If the owner is disgruntled by how the negotiations are going, or how involved you are allowing them to be, then you will need to take a more flexible and inclusive approach.
If you are not sure of the reason for their standoffish attitude, then take some time to establish clear and empathetic communication with them to try and gauge their mindset and work toward a mutually beneficial resolution.
4. Security threats
An unfortunately common crisis that can strike during the M&A process is a cybersecurity attack which leads to a breach of information. This can happen because M&A activity involves the exchange of sensitive data, and hackers can exploit this exchange of information to gain access to it.
Similarly, during a merger or acquisition, workflows can become disrupted, and employees could be more likely to make an error that leaks private details.
Whatever the cause of a security breach, if it does occur the crucial thing is to act fast. Appoint internal or external cybersecurity experts to patch any holes and shore up defences to minimise the effects of a breach. Maintain clear and transparent communication with the seller and do everything you can to enact rigorous damage control.
Of course, the best thing to do is make sure that a breach doesn’t occur in the first place. Come up with a rigorous security plan to last throughout the M&A process and beyond, investigate the effectiveness of your target’s cybersecurity, and ensure you have your own cybersecurity team in place to maintain constant vigilance against any weak points or potential threats.
5. Legal disputes
Finally, when you embark on the acquisition process, it’s important to be prepared for the possibility of legal difficulties during or after the transaction.
These difficulties could take the form of:
- Disputes over intellectual property (IP). Perhaps your target has infringed a patent of a competitor. If so, they – or you, as the new owner – could become embroiled in costly litigation that damages both finances and reputation.
- Employee lawsuits. Disgruntled employees could raise a dispute over anything from unfair dismissal to problems with a change of workplace benefits.
- Shareholder litigation. This may arise for several reasons, including unfair structuring of the deal, price disputes, fiduciary duty breaches, or misrepresentation of facts.
To deal with – or, hopefully, avoid – these kinds of legal battles, it’s important to have an experienced legal team to hand to help ensure things proceed as smoothly as possible for everyone concerned.
How a business broker can help
As you can see, embarking on a merger or acquisition can throw up an array of potential crises that you may have to manage; challenges that could even end up in the deal failing before it’s even got off the ground.
Unsurprisingly, you may be feeling a little daunted by this point, but don’t worry – the good news is that, if you surround yourself with the relevant experts – be it legal, financial or industry-specific – you give yourself a much better chance of weathering any difficulties and emerging unscathed (and with a valuable deal completed).
One expert you may wish to strongly consider hiring is a business broker. Business brokers can offer invaluable guidance and assistance throughout the M&A process, helping you to avoid or surmount unexpected obstacles. Not only that, but they can handle every stage of the acquisition process from start to finish, from verifying initial targets to assisting with negotiations and due diligence. This level of support can help you to proceed through to deal completion with confidence.
Harris Acquire – acquisitions made easy
If your company is thinking of making an acquisition in the coming months or years, and you are worried about potential problems, why don’t you get in touch with our experienced and reliable team?
We can oversee the entire acquisition on your behalf, handling any challenges that may arise and helping to maximise the value of your deal while minimising stress.
What’s more, you can also take advantage of our exclusive Acquisition Finder pilot, which includes a 30-day money-back guarantee for your total peace of mind.
To find out more about this service, and how we can help you with your acquisition, give us a call on 01926 757100 or send an email to Hello@harrisacquire.com.
