10 common M&A mistakes to avoid
An M&A deal is a truly complex process that requires to accurately face and manage many different factors which can affect its success or failure. Every entrepreneur or manager willing to undertake a growth process through aquisitions as well as to sell the business, should avoide some very common mistakes that can actually increase the likely of insuccess of the deal. Based on our experience, these, in detail, are the most common 10 mistakes to be avoided to make your deal succeding.
1. Select the wrong advisor
The choice of the right advisor is one of the most important steps that companies should take accurately when pursuing a transaction. The advisor plays a crucial role in planning and executing the whole process so that specific skills and expertise are needed in order to make the process short and efficient. A lack of experience in managing such transactions, as well as a poor industry knowledge might significantly reduce the probability of success of the deal and increase the chances of losing opportunities. Being a renowned professional does not always mean you can actually lead an M&A transaction to a fruitful closing if that is not your core competence. Industry knowledge plays an important role as well: the more the advisor knows the industry the better is the target or buyers selection process and the faster and more efficient the whole transaction will result.
Take home message: select an experienced M&A advisor with industry knowledge coherent with your business.
2. Too many consultants running around
Relying on a lot of consultants is not the right choice. Lots of people means lots of different ideas, points of view and professional egos. A lean and small team of selected professionals, one for each aspect of the deal (e.g. financial advisor, lawyers, tax consultants as well as any other specialist consultant depending upon the sepecifity of the deal) is the way to go. No conflicts and faster decision making process.
Take home message: too many cooks spoil the broth.
3. Listen to naysayers
An acquisition or a sale process may have many implications affecting the interest of many stakeholders. Both positively and negatively. Whereas there is a risk potentially arising from the transaction or a conflict of interest, naysayers starts coming up discouraging the deal (e.g. target company’s managers who worry about the change in ownership as well as the company’s accountant scared to lose a client, just to make few examples). Once the company’s strategy has been approved and the transaction is based on a strong rationale, go right on your way and avoid bias of any kind unless some true evidence comes up making the process really disadvantageous for the company or its owners.
Take home message: go after your goal and don’t listen to naysayers.
4. Stress details and lose sight of the whole picture
Many times negotiations remain stuck for months simply because small details are perceived as enormous issues by one of the parties. Stressing details might cause to forget the whole picture and make the process taking longer, with an increasing risk to fail and to lose the momentum.
Take home message: look at the things on their whole.
5. Love too much the deal
It is not uncommon to find out situations where the top management is fired up by a deep desire to close the deal like it fell in love with the target and wants to take it over no matter what. Some CEOs see an acquisition like the opportunity to add short term sales and margins and consequently the chance to get visibility and popularity. Sometimes their desire to take over an historical competitor, for instance, overwhelms their better thinking; they set their eyes on a target that becomes the ultimate goal and their egos get excited. Such situations might be risky and must be avoided. Discipline and rationality are tough to be maintained but should always lead the process.
Take home message: set the strategy first, then dig into the target and investigate if it is right for you.
6. Lose momentum
Momentum is that situation when every party is keen to close the deal, and it’s what you need to chase to make your deal flowing. Stay highly focused and concentrated, don’t lengthen the process unless is strictly necessary, don’t stress details and take advantage of the momentum. Not exploiting this positive phase might mean making the processes failing.
Take home message: ride the wave.
7. Focus only on price and not on terms
M&A processes are complex and negotiations involve multiple variables that might affect the final outcome. Even if the price paid or received has an undoubted importance, other factors should be considered and discussed with the same level of accuracy and scrutiny by the parties such as the deal structure, payments timing, guarantees and other contractual terms and implications which might, in some cases, make an offering more attractive, even though lower in value than desired. To make a long story short, the value is made up by a mix of factors to be accurately considered.
Take home message: consider the proposal in its whole, money is key but not only.
8. Poor due diligence
Many buyers fail to dig into Due Diligence, which is what can really allow to fully understand what you are about to acquire and whether or not it truly fits with your strategy. Even though is a time consuming and quite expensive process, every buyer should be aware about the importance of such investigations in actually preventing a wrong deal or a fail in the post-acquisition phase. Buyers should pay close attention not only to financial issues but even on other important aspects like corporate culture, organization, reputation and in the general all those factors who are not in the books but can determine the success of the deal. You need to go in depth under the financials and figure out what stands behind the numbers and how those numbers are replicable and improvable. This takes time and costs, but it is worth it.
Take home message: invest in a good due diligence.
9. Ignore post-merger integration prior the closing
Even the best project could become a huge fail when post-merger integration phase is not accurately studied and managed. Buyers should define integration strategy and analyze implications on the business prior to close the deal in order to get a fully understanding of the feasibility of the process and the issues that might arise, and then invest time and resources to integrate the new business. Cultural disparity, unmatchable IT infrastructures, different policies and business processes, poor communication and messages transmission to new employees, employees resistance, conflicting decision making processes as well as other organizational hurdles are the most cited reasons why acquisitions fail. Practically, tough work starts after closing.
Take home message: start integrating before the closing.
10. Ignoring the psychological side of negotiating
When negotiating with a potential buyer or seller psychology plays a primary role. This is true especially with family businesses where Creating the right empathy with the counterpart often allows higher chances to get to a positive closing and facilitate the following integration phase. This does not mean to lose bargaining power or tactics, but simply means to have a positive attitude toward the deal. Do not build up walls and barriers but approach the deal rightly since the beginning: this will surely help you in getting a better understanding of the other part and will promote a win-win situation.
Take home message: use the right approach.