Why your M&A could fail

Common Reasons Why Mergers and Acquisitions Fail

There’s no doubting that mergers and acquisitions (M&A) are extremely complex. Many are highly successful, and end up providing excellent returns for both businesses and shareholders, but some go horribly wrong – and this occurs more often than you might think. Here, we take a look at some of the common issues that cause M&A to fail, to help you avoid the pitfalls.

An unclear strategy

It may sound obvious, but a business needs to have the right reasons for an M&A deal. All too often, however, companies have the wrong reason for attempting an M&A, or their reasons for attempting it are unclear. It may be that interest from the competition has spurred the organisation into making a deal without planning it effectively, or it could be that a CEO simply has something to prove to the Board. Either way, unsound reasoning often complicates M&A, and causes it to fail.

Overpaying

Oftentimes, the business making the acquisition pays too much for the one they’re acquiring. This could be for any number of reasons, including a need to block a competitive bid or a wish to make the acquisition quickly. However, this can mean that making a return on the investment a year – or even five years – down the line is unachievable.

Unfocused decisions

Particularly in the case of mergers, slow decision making can pose a threat to the deal. From the outset, the two companies involved must be prepared to decide who is in charge and in which direction they wish to take the business. When these things occur too slowly, it can result in both companies losing customers and staff.

Inadequate due diligence

While it’s true that commercially sensitive information cannot be exchanged by two companies prior to a completed merger or acquisition, plenty of information can still be obtained to help a business decide whether the deal is worth pursuing. More than one organisation has had the wool pulled over its eyes by the business being acquired, so ensure a specialist integration team is set up to perform thorough due diligence is vital. Enlist the help of a tax accountant to research available accounts information and confirm the deal will benefit your company.

Culture clash

Before entering into an M&A deal, it’s worth taking time to look at the other business’ culture. All too often the end result of a merger or acquisition is unsatisfactory because – despite working in the same industry and serving similar customers – your values are too different or your ideas too disparate. Of course, language barriers and differing time zones can also pose problems for those looking to achieve an M&A deal with an overseas organisation.

If your business is considering entering into an M&A deal, it’s worth ensuring the correct and relevant research is done. Take the necessary time to understand any risks posed and create a clear plan, and you will be more likely to find the deal successful. For help with the accounting research, contact Charter Tax, a noted chartered accountant in Tunbridge Wells.