Around seventy per cent of acquisitions fail to deliver what the buyer expected. Not collapse, usually. Just underperformance against the case that justified the price.
The reasons are consistent: a vague strategy, optimistic assumptions, thin due diligence and no plan for the first hundred days. None of them are bad luck.
Here is why deals disappoint, and what the buyers who get it right do differently.
Why so many M&A deals fail
These are the main culprits behind the collapse of so many acquisitions in the UK and beyond.
- Lack of planning and research – this easily avoidable mistake is surprisingly common in the M&A world, where business owners tend to rush into deals without enough prior planning or strategizing. Unfortunately, if you fail to do enough market research and rush your due diligence, you won’t be able to highlight the synergies you need to make your transaction a success. Similarly, you will probably stumble into obstacles that could have been easily avoided if you spent enough time preparing for them.
- Overpaying – this is a very common error that can be catastrophic down the line. Shockingly, it seems to be a mistake very common to especially sizeable and wealthy businesses, which eagerly throw millions – or even billions – at a deal without adequately identifying the pros and cons. As a result, the acquisition fails, and they must often unload their new purchase at a significant loss.
- Poor cultural ‘fit’ – when approaching M&A deals, acquirers often fail to factor in the importance of cultural compatibility, to their detriment. The truth is that cultural clashes can cause significant problems for acquisitions and can even lead to failure, as two different teams with very different values and operational methods will struggle to collaborate. In a nutshell, trying to blend two very different corporate cultures is a tall order and should be avoided wherever possible.
- Integration challenges – another all-too-frequent M&A mistake is to focus on the deal-making process itself and neglect to orchestrate a thorough, effective, productivity-focused integration strategy. You can’t just expect to merge two companies seamlessly without any rigorous planning. Operational discrepancies, disgruntled employees and a lack of any coherent strategy post-sale can all hamper an acquisition’s chances.
As you can see, the common reasons for deal failures cited above can be avoided with the right approach. So, bearing that in mind, let’s move on to the positive portion of this guide – how to engineer your acquisition’s success from the very first day!
Top tips on making your acquisition work
Here is some insider advice to boost your M&A deal’s chances of blossoming, rather than withering on the vine.
1. Map out a clear strategy
Why not start off on the right foot from the start by devising a clear, goal-oriented acquisition strategy?
Taking the time to create a detailed roadmap for your M&A activity will ensure you stay on track when it comes to vetting potential targets. It will also help you evaluate which business represents the most value in terms of synergies and the specific goals you want to achieve. Perhaps your aim is to explore new markets, or maybe you are looking for a similar business that can help you achieve operational or financial efficiencies.
Finally, having an acquisition strategy to follow will help you avoid overpaying for a business, as you can set an M&A budget to stick to.
2. Keep your expectations reasonable
Once you have narrowed down your prospective targets to the one you want to buy, it’s important for both you and your seller to approach the deal with realistic expectations. It’s also crucial that both sides communicate with honesty and transparency during every stage of the acquisition process.
Taking this approach will help you and the seller sort out favourable terms for your agreement. This includes working out the deal structure, payment plan and proposed timeline for the deal to take place.
3. Enhanced due diligence is key
As we have already mentioned, rigorous due diligence is vital. This means evaluating every aspect of your target in depth – not just their finances and operational methods but their corporate culture too.
By leaving no stone unturned (and not rushing the process), you maximise your chances of acquisition success, as you can clearly pinpoint synergies and shared corporate values. You also give yourself the opportunity to spot any glaring problems which could render the transaction too risky, allowing you to bail out before it’s too late.
4. Plan your post-sale integration
Finally, it’s crucial to plan ahead, looking beyond the deal process itself. Integration problems have the potential to scupper an acquisition’s chances early on; to avoid this, you should create another detailed plan – this time, for the transition period post-sale.
Communicate clearly with both teams (your existing staff and your new workforce) and make sure everyone knows how things are going to be run and what their roles will be. Set transparent, achievable goals for the first few days, weeks and months and take on a positive, proactive leadership role.
You should also think about arranging one-on-one meetings with staff to provide reassurance and boost motivation. You could even organise a team-building event or two in the early days to help bring everyone together.
A happy and engaged workforce is a productive one – never forget that!
How a business broker can boost your deal value
Making a success of your acquisition is a complex and potentially daunting task, there’s no two ways about it. But, as you can see, there are things you can do to engineer deal success right from the very beginning.
Another top tip we haven’t yet covered is to hire an M&A advisor. A tried-and-trusted business broker can work wonders when it comes to maximising your deal’s value – while removing any significant obstacles.
What’s more, they can take over the acquisition process and handle the vast majority. This ranges from sourcing and verifying feasible targets to mediating between you and the seller, filling out paperwork, and helping you navigate negotiations and due diligence.
Last but by no means least, an experienced business broker can provide you with invaluable advice and insights, helping you to ace your M&A deal and ensure a straightforward transition for your new business.
Final thoughts
So, there you have it – the insider’s guide on engineering success for your next acquisition, starting from Day One!
If you need any more insights – or, better yet, if you are keen to hire an experienced broker for your next M&A deal – don’t hesitate to get in touch. Our friendly and professional team can take all the hassle out of your next business sale and help you get the ROI you deserve, all without a modicum of stress or fuss.
To find out more, give us a ring on 01926 757100 or send a query to Hello@harrisacquire.com. We look forward to hearing from you!
If you are weighing up a sale, our business sale advisors can talk you through what the process actually looks like. If you would rather start with the number, ask for a free business valuation.
