Most acquisitions do not deliver what the buyer expected, and the reasons repeat.
Overreach, overpayment, two cultures nobody thought about, and an integration plan that amounted to hoping. The failures are rarely financial engineering gone wrong. They are ordinary management problems that were foreseeable.
Here are the ones that account for most of it.
Reason 1 – Overreaching
Many large and well-established companies feel that adding another major business to their portfolio could be the ideal way to scale up.
Unfortunately, this acquisition strategy carries with it a significant amount of risk, and it’s also going to be substantially more costly than buying a smaller business. In fact, because it can be so tricky to combine two large operations, acquirers will possibly find themselves racking up a sizeable amount of debt to make the purchase, and then struggling in various ways to ensure the deal succeeds.
From wrestling with a new management structure to reassigning staff and having to deal with possible operational incompatibilities, acquiring a large business can throw up various costly obstacles and is not for the faint-hearted.
Reason 2 – Overpaying
Another reason M&A deals often fail is because a company that wishes to buy another business is so keen to complete the deal that they don’t devote enough time to getting a thorough valuation or establishing the true value of potential synergies.
Getting an accurate valuation of a target business is vital if you want to ensure you are paying a fair price for what they have to offer.
There are several different methods that can be used to value a business. Alternatively, you can hire a business broker to oversee the acquisition on your behalf and they can provide a valuation that reflects the true market value of your prospect.
Reason 3 – Cultural Incompatibility
A crucial thing to bear in mind when approaching a merger or acquisition is that, just because you may have some promising projected numbers, it doesn’t mean that your deal will bear fruit.
This is because combining your forces with another business – whether through a merger or a straight-out purchase – is rather like entering into a marriage. If you don’t consider both companies’ ‘personalities’ (i.e. their unique corporate culture) then you run the risk of having your transaction fail of its promise.
So how can you avoid a clash of cultures?
The simple answer is that you should conduct thorough due diligence before you go ahead with the deal, to ensure that your corporate culture aligns with the business you’re buying.
This can be done by carrying out surveys and assessments of your target’s management team and employees, defining the combined culture you would like to create, and devising a strategy with clear goals in place to help you nurture this new culture.
Of course, it may take time for you to achieve the new company culture you would like, but if you and your new combined team stick with the program and have well-defined, shared goals, you will give your new venture the best chance of cultural success.
Reason 4 – Mishandled integration
Fostering a positive and effective corporate culture isn’t the only major task you will have to focus on once the deal’s been finalised. Unfortunately, post-integration challenges have devalued many a merger and acquisition.
There are various essential aspects you’ll need to think about when it comes to integrating your new business into your existing company. Coming up with clear and focused post-integration strategies will help to ensure that both businesses continue to flourish in their new form.
This should include identifying critical projects that need to be completed, assigning the appropriate staff to specific projects, and finding ways to streamline operations to maximise value and efficiency.
Reason 5 – Factors beyond your control
Unfortunately, some M&A deals will fail due to external factors which no one can necessarily predict or control. The sad fact is that the world we live in now is an undisputably volatile one, with major conflicts ongoing – not to mention difficulties caused by trade wars, climate change, and political and economic turmoil.
Consequently, it is always possible that a major event will occur that could jeopardise the success of the M&A process.
If this does happen, then you will need to think very carefully about whether it is still worth your while to continue with the deal, or if there are any strategies you can employ to maximise damage control and still receive a fitting return on your investment.
How we can help
As you can see, there’s no denying that mergers and acquisitions are complex and potentially fraught transactions which come with varying amounts of risk.
To help ensure the success of your future acquisitions, it may be worth your while to hire the services of an experienced and reliable business broker like Harris Acquire.
Our talented team can take charge of the entire process, overseeing every stage of the acquisition journey, from finding and verifying the most suitable targets to assisting with negotiations, due diligence and deal completion. We can also offer insights and advice spanning everything from financing your deal to managing a smooth and seamless integration with your target.
To find out more about how we can help make your acquisition a success, give us a call on 01926 757100 or email Hello@harrisacquire.com.
