Mergers and acquisitions (M&A) are an excellent way to increase your market share, access industry-leading talent, explore new markets, reduce costs and increase profits, get favorable taxes, diversify your investment, corner future value, and more. However, studies suggest that their failure rate ranges between 70% and 90%. Knowing how to choose targets, if and how to integrate them, and how much to pay for them can drastically help increase your success odds.
Familiarizing yourself with the common M&A errors, how they can impact your business, and what you can do to evade them can boost success chances. This article outlines four common M&A mistakes and how to avoid them.
Not performing detailed due diligence
Detailed due diligence is a vital, comprehensive inquiry or investigation into the affairs of the target company you intend to acquire or merge. The due diligence investigation helps you identify, measure, and mitigate the liabilities and risks of acquisitions and mergers while assessing the target company’s value.
Due diligence depends on the transaction nature and can be legal, financial, property, information technology, or environmental. Inadequate due diligence may result in legal consequences like inheriting litigation proceedings against the target company or financial issues, including high debts and significant liability amounts.
Failing to plan your M&A
As a seller or buyer, your ultimate goal is selling or buying a business. Successfully achieving this goal can be difficult and may fail without a proper plan. A comprehensive and easy-to-execute strategy is a must-have to attain your objective successfully. In your M&A plan, explain why you’re considering a merger or acquisition, how you intend to finance it, who your advisory team will be, your ROI model, and the deal size you’re looking for.
Business valuation involves determining the target company’s actual worth or fair value. Some common challenges in valuing a merger or acquisition include miscalculating the target company’s financial data, missing critical details during due diligence, misreading the target’s buy-side competition, and failing to evaluate the management team’s quality properly.
Lack of proper financial analysis means it’ll be challenging to quantify the deal’s prospective shareholder value. To overcome this issue, invest in an independent valuation by third-party valuation professionals because they don’t have a conflict of interests.
Not involving the right experts
Mergers and acquisitions aren’t DIY projects. Failure to involve the right professionals in the process sets you up for failure. Business valuation experts will help determine your company’s worth or target to ensure you don’t settle for too little or overpay. Accountants with M&A experience will help you with financial due diligence to ensure you’re appropriately positioned for the deal and advise you on transaction structuring to get the most out of it.
M&A legal experts will handle the negotiation’s legal aspects while guiding you through the legal due diligence process. Your M&A team should include investment bankers, business brokers, and financial advisors. This will help streamline the merger and acquisition process while enhancing your success rate.
When mergers and acquisitions aren’t done right, they will fail. Consider avoiding these common M&A mistakes and what you can do to avoid them.