Unfortunately, mistakes do happen in mergers and acquisitions, but the more common ones can be avoided—especially when you can lean on the experiences of companies that have successfully combined forces before you. By understanding the risks involved in mergers and acquisitions and preparing your company as much as possible for the changes ahead, you can, for the most part, avoid regrets and keep the focus on the new version of your company—rather than constantly having to look back at any mistakes made.
Why Do Mergers and Acquisitions Fail?
Bad timing, misunderstandings, a change of heart, a most unwelcome surprise, a sudden change in the economy—a great many factors can contribute to mergers and acquisitions problems and ultimately failure.
Both the target company and the acquirer come to the M&A table with their own goals and perspective, which may not, in the long run, mesh. An acquiring company, for example, could have its eye on the target company’s intellectual property and not necessarily its employees. One company may be specifically looking to quash its competitor. Or both companies want to work together, but find over time that they will not be able to pull it off.
How to Avoid Common Mistakes in M&A
- Understand your exit strategy options. Ideally, you have a clear exit strategy going into a negotiation with another company, but that is not always realistic when the market changes and circumstances change so often. By understanding the pros and cons of your many exit strategy options, and preparing as much as you can for the scrutiny involved when another entity becomes interested in your company, you will be that much more prepared—and more likely to avoid mistakes in M&A.
- Get your books in shape. Smaller companies all too often find out too late that they have major catching up to do if they do not have their books in good shape. The acquiring company will want to confirm all that you are telling them—and the only way to do that is through your financial information, including your historical financial statements, forecasts, and equity information. They’ll want to lean on the work you have done so far to understand where you are taking your company and what’s possible in the marketplace. As they dig deep, they may want to see how your historical budgets and forecasts lived up to your actual results. You don’t want them to be surprised or rightfully skeptical of the data you share with them.
- Be ready to provide documents. The acquiring company will have a long, long list of documents they’ll want to see, and you’re better off having these documents at the ready, and in good shape, rather than scrambling. These include financial records, contracts, information about stock issuances, and employee-related items like stock options and 401(k) plans. You want the focus to be on the deal itself—and the future of your business—rather than “where is that document I asked for?”
- Get the experts on the case. Expert accountants can bring a fresh perspective to your financial records and processes, to ensure you have proper documentation for these processes (some acquiring companies will ask to see this) while also laying the groundwork for a smoother transition as the company integrates with another and for when the auditors become involved.
- Get to know your M&A partner. The importance of due diligence in mergers and acquisitions cannot be overstated. While the other company may be digging deep into your business, you will want to do the same and to keep the lines of communication open. Early on, be sure that they know your expectations and hopes for the deal. If a merger is imminent, spend time understanding the cultural differences of the two companies—this area often gets ignored but can greatly affect the success of the deal on the other side.
Avoiding Problems Faced in Mergers and Acquisitions
The main way to avoid problems faced in mergers and acquisitions is to be prepared. M&A experts who have guided companies through the process take a proactive approach to help companies be ready with the information that will be requested, to ask the questions they may not realize they need asking, and to help them think about—throughout the process—what happens after the deal is done. Let RoseRyan be your trusted advisor through your company’s next strategic move. Reach out to one of our experts today.