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6 Mistakes To Avoid When Dealing With A Major Merger Or Acquisition

M&A or Merger and Acquisition text on black block
pichet_w via Getty Images
M&A or Merger and Acquisition text on black block

Here are six common mistakes on the part of buyers and sellers that can lead to difficult or unsuccessful business acquisitions.

#1: A lack of succession planning

Problems can begin well before a deal is even on the table. Business owners often find it hard to step away from the business and ask two basic questions: What is my biggest dream? What is going to happen to my company if I retire?

Every business owner has two options:

  1. Create a succession plan that will keep the business strong and let the owner negotiate their price when they want to get out of the business; or
  2. Hand over the negotiating power to the buyer who sees a perfect opportunity to buy an ailing business for relatively little because the owner has little or no say in the selling price.

Option two can bring trouble to the new company when disaffected and stressed employees who are part of the former business must work under a cloud of ill will and without the support of the previous owners and management. Both the seller and buyer pay a price through their lack of planning and greed respectively.

#2: Letting ego dictate the transaction

Buyers' and sellers' egos can prolong what might have been a smooth transaction. First, in high profile deals, both parties don't want the media to see them backing down in the face of a more aggressive foe. Immensely wealthy owners and buyers who measure their success by the scope of the deals they push through are unlikely to back to down without a fight. The results may involve soaring legal costs, shareholder dissention, employee stress and an extended process that might have been shorter had the parties put their egos aside. Second, their focus on the deal supersedes the need for both buyer and seller to keep a close eye on the day-to-day business. Neglected companies that fall out of favour with analysts can help to quickly sour a deal.

#3: Rushing to get the deal done

Instead of doing proper due diligence on the acquisition to make sure everything (including sales and profits) are really as they appear, all parties might "save the details for later." This is common when buyers are flush with cash and are on the acquisition trail. Or, they see developing market opportunities and want to "catch the wave" and get the new acquisition making money as quickly as possible.

Hindsight is indeed "20/20" and more than one purchaser has asked how they could have missed several red flags that eventually turned the acquisition into a lemon. No doubt, proper due diligence can halt bad buying decisions and save buyers time and money.

#4: Letting anxiety drive decisions

Sellers can be just as anxious to get the deal done. So anxious, in fact, that they don't know the real value of the business they are keen to sell. Buyers may know something about the asset's hidden value that the owner doesn't. The owner may be happy to sell at four times earnings and the buyer may talk them down to three times earnings. To their horror, the seller may learn after closing that the buyer would have paid ten times earnings, given the secret catalyst within the business that would cause its value to jump immediately after the sale.

#5: Oversharing information publicly

It's easy to inadvertently share confidential information. In their excitement about a pending deal, sellers and buyers can tip their hand to the media or other third parties and may offer incorrect information. The rumour mill creaks into action and soon both sides are offering conflicting facts about the pending deal. This can erode the trust of legislators, investor and employees and result in huge delays as the real story is eventually revealed.

#6: Forgetting about employee morale

Sellers and buyers often forget that it is people (employees) who ultimately determine the success of the acquisition or merger. Buyers who don't work closely with sellers to ensure they understand the culture and values of the firm and people they will soon manage are faced with huge turnover, which is demoralizing and expensive.

Having been involved with several buyouts in a number of industries, success comes when new management figures out the accounting issues while working hard to build the trust of their new teams. Frankly, some don't care, which often leads to employees' rush for the exits. (New owners may see this as part of a "rebuilding process", which they feel is inevitable if the new business is to succeed. In my experience, few clients and customers agree with this approach as service and product quality can suffer.)

New owners with a broader vision of the business may bring in objective third parties to build bridges within teams that blend new and existing employees. Remember that rumours travel quickly among employees, as many fear (or hope for) a quick termination to end their stress brought on by uncertainty. To bring calm and trust, leaders must ensure employees see harmony between buyer and seller, receive accurate and timely management updates that affect them, and that management at all levels keep their promises.

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