Mergers and acquisitions (M&A) are done to join two companies and stimulate growth, gain competitive advantages, impact supply chains, and increase market share. When done right, a merger can catalyze the growth of the new entity, opening up more doors and increasing revenues significantly. But when critical mistakes are made, mergers and acquisitions can lead to an irreversible disaster.
Learn about the common mistakes you should never make during mergers and acquisitions.
Failure to exercise due diligence
This is one of the biggest mistakes that business owners make and an all too avoidable one at that. Before one buys a business, due diligence must be performed to ensure that the buyer knows the financial big picture of the business they’re trying to acquire. Otherwise, a failed merger and acquisition might be down the road.
In general, a buyer must know what is owned, leased, and borrowed. To learn about the business and its financial big picture, they can look into:
- Financial information
- Intellectual property
- Real estate and physical assets
- Contingent liabilities
- Taxes
- Insurance
- Licenses and permits
- Employees and benefits
With all the factors to be considered, a business should hire acquisition integration consulting services to increase the chances of M&A success.
Thinking that every other M&A is the same
Each merger or acquisition is unique in its own way, even in those made within the same industry. Thus, thinking that every M&A is the same can lead to poor assumptions based on past experiences, either their own or others’. This is one of the main reasons why second mergers or acquisitions don’t go better than the first ones. What might have been successful in one M&A may not work for another. Moreover, what may have failed to work in the first M&A may work for the second one.
Not having a favorable sale agreement
Ask a reputable lawyer to create a favorable sale agreement for the merger. If this is not possible, a buyer should at least hire a lawyer to look over it before signatures are made in ink.
This contract contains all the areas of the business (real estate, intellectual property, liabilities, etc.), who is responsible for each area, when does that responsibility shifts, and how that shift is done.
Making integration mistakes
The process of integrating two companies is often tedious and riddled with problem areas. After all, two companies with differing cultures, operations, and organizations are being joined; there will be issues during integration. However, these problems should not cause significant delays in operations, nor should they cause conflict between two companies.
Integration mistakes can be minimized by preparing a detailed plan beforehand. This plan should include all the things that need to be done before operations start, and must have an hourly step-by-step plan that outlines every task so that the integration happens as smoothly as possible. To ensure that a post-merger integration plan is free from holes, devising should start way before the merger is completed.
Not having a non-compete agreement
After a merger is completed, the seller may open another business with the same line of work if a non-compete agreement was not made. To avoid this potentially disastrous mistake, the buyer must establish a non-compete agreement that prevents the seller from opening a competing business within a reasonable geographical scope and a certain period of time. Again, hiring a lawyer to take care of this part of the merger is the best way to go about it, as they can help ensure that there are no loopholes in the agreement that the seller can jump through.
A merger or acquisition can be incredibly difficult, time-consuming, and expensive. With that in mind, both seller and buyers must actively avoid these common M&A mistakes to keep the process from getting even more difficult, and, of course, significantly increase the chances of success.
