Top Mistakes Companies Make During M&A and How to Avoid Them

Many employees view M&A as a perfect chance to analyze the market or explore opportunities to gain new business advantages. However, M&A process is time-consuming and face great many risks and obstacles. If companies embark on mergers and acquisitions in haste or do not plan effectively, they are sure to incur major losses, business disruptions or clash of corporate culture.. Here is the low down of some of the common issues that companies run into while implementing M&A transactions and how to avoid falling for them.

1. Inadequate Due Diligence

Perhaps the most crippling oversight that companies commit during an M&A process is negligence in the due diligence process. This is the phase where a company is supposed to unearth as much as they can about the other party’s finance, legal compliance, customers, and operations. When implemented poorly it creates risks and costs after the deal is signed rather than before.

How to avoid it: Review physical facilities critically through a SWOT team comprising financial, legal, and operations experts. Outside consultant on demand is also an effective method of accessing impartial and unbiased evaluation of the target firm’s capabilities and vulnerabilities. It will be useful to spend more time doing research on the target company’s financial position, legal issues which can appear, and its position on the market to have less problems during their acquisition.

2. Paying More For The Target Company

The first is overpaying for the acquired firm which is occasioned by factors such as bidding wars or over-estimation of the target company’s value. Whenever firms do so, they lose lots of resources while in the process and may be unable to earn an ROI, which affects their future functioning.

How to avoid it: Budget lucidly while noting strictly to the selected budget. A professional valuation is therefore important to avoid being overcharged. It is advisable to call industry specialists or financial consultants to set the correct value of the target company. However, exercising self control during negotiations is important because failure to do so will lead to making emotional driven decisions that may result in overpayment.

3. Cultural Mismatch

Some of the subtle missteps that happen during M&A include not taking an approach to company culture. However, beneath the numbers, merging two P&Cs also disrupts the company culture over the long term. The changes may not be well welcomed by employees and this may result to poor performance or massive depature from the organization.

How to avoid it: If you are still in a negotiation stage then try to evaluate cultural similarity or dissimilarity between them. It is important, therefore, to work through values to address, communication practices to adopt as well as leadership approaches to take at the beginning of the process. There should also be engaged the HR specialists, which will allow seeing possible problems and develop an approach to the cultural synchronization. When it comes to employees, the proper post-merger integration program can help to create conditions for a smooth transition as well.

4. One of the Key Mistakes Companies Make Is The Lack Of Clear Objectives.

In some cases, a firm or company can move into an M&A deal not with a definitive aim in mind. If proper objectives are not set, the merged firm loses focus, and the synergies that were expected from the merger fail to happen.

How to avoid it: Consolidate Terms of Reference from the onset. This is important because no matter whether the company aims at increasing its market share, cutting its costs or acquiring new technologies, precise objectives will set the direction in the management of the whole process. Furthermore, stakeholder management is critical in presenting these objectives when it is carried out once stakeholders are identified.

5. Lack Of Appreciation Of The Integration Issues

It is sad that most firms think that they only reach for the stars once the deal is sealed. Nevertheless, integration is typically the most difficult aspect of M&A because it involves merging the target’s IT as well as human resources. Lack of focus during this phase will obviously lead to missed synergies, operational disruption and loss of key talent.

How to avoid it: Start thinking about integration from the early stages of the project and secure enough funding to better handle the process. Who should create a successful integration plan pervasive across all areas of the company and includes technology, people, and policy? A more important advantage of having a private equity executive search team is that it can also assist in sourcing and hiring quality talent to lead the newly merged firm.

6. Unawareness of Regulatory and Legal Matter

They also know that regulation and the legal system can torpedo an M&A deal. These are antitrust laws, noncompliance or outstanding lawsuits, disregarding such aspects can slow down the deal or even kill it!

How to avoid it: Legal and regulatory professionals should also be engaged at the start of a merger and acquisition transaction. It is important that all conditions of the deal meet legal requirements within the target market. There are also likely to be changes in the regulatory policies in industries and these must be closely monitored so that effects on the expected outcome of the deal are understood.

7. Lack of Communication

Facilitating communication effectively during M&A transactions is one of the frequent concerns. In either event the BLE rendered out is unfriendly that could deter employees, customers, or investors when they are given no information regarding the state of affairs. Employees may develop anxiety or insecurity in their workplace, and customers also may have doubts about their relationships with the company.

How to avoid it: When it comes to developing a communication strategy, be sure to involve all the essential stakeholders and let them know all that is going on most of the time. The best way to ensure that the people have confidence and trust in the organization is through transparency. Communicating more frequent updates over progress of this deal, leadership change, and future vision will help negate the concern.

8. Neglecting the Human Factor

Lastly yet importantly, the last error witnessed in the course of M&As is the lack of consideration of the human factor. Mergers create fears among the employees that in turn cause them to disengage or seek other opportunities elsewhere. Failure to address the welfare of the employees can lead to employee attrition which consequences are adverse to the merged firm.

How to avoid it: Check on your employees, look out for their well-being, and make a consideration to retain them at your company. Should ensure the employees are aware of how the merger impacts them and ensure they receive the needed assistance in the exercise. Also having a sound strategy for team integration and handling employee issues help avoid nasty surprises in a merger.

Conclusion

Mergers and acquisitions are difficult processes and when mistakes are made they end up being very expensive. Nonetheless, by doing the right things, different from pitfalls like lack of proper research and analysis, overpaying for assets and mergers, and cultural differences, firms can optimize the chances for a proper merger. In some of these areas, there is a need to bring in special skills either from a consultant to meet some of the needs at certain times or from an executive search to bring in the best talent from the private equity executive and to hire him or her accordingly.

If managed correctly right from the onset of M&A activities, these approaches can be avoided and lead to long term successes.

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Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.

Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.

Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:

SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $300 if you complete a direct deposit.
5% Savings Accounts. I'm currently getting 5.24% interest on my savings through a company called Raisin. Opening a Raisin account takes minutes to complete, it's free, and all of your funds are FDIC-insured. I explain how it works, why I'm now using it to store my emergency fund and any other cash savings I have, and why I recommend everyone check it out in this review.
US Bank Business. US Bank is currently offering new business customers a $900 signup bonus after opening a new account and meeting certain requirements.
M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $100 for opening an account.
Empower. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.

Feel free to send Kevin a message here.