If you want to grow your company and build long-term value, an acquisition is one of the most powerful tools at your disposal. But while many deals make it to closing, few achieve their goals. Seventy to ninety percent of all deals fail, and 50-60% actually decrease shareholder value.
Why Do M&A Deals Fail?
Understanding what goes wrong with mergers can help you beat the odds. This requires you to take a long, hard, honest look at your own business practices, as well as your goals for integration. Here are the most common sources of deal failure:
- Strategy: No clear strategy, a poor strategic fit, or strategy not appropriately used to define integration goals.
- Synergy: Excessive optimism about potential synergies, or underestimating the complexities of achieving desired synergies.
- Culture: Fundamental cultural incompatibilities, and failing to address or plan for them.
- Leadership: The business must be able to operate without its owners. Weak management or leadership can lead to talent loss, integration failure, ego clashes, and more.
- Transactional issues: Poor deal structure, long-lasting negotiations, overpayment.
- Due diligence: A process that meanders along too slowly, inadequate due diligence, or failure to act upon findings.
- Poor communication: When you don’t communicate clearly, the rumor mill fills the void.
- Key talent: Not taking swift action to retain key players.
- Technological failures: Not identifying or addressing incompatibilities, poor technical due diligence, underestimating the time required for integration.
You Can Beat the Odds
You can beat the odds—but only if you understand your own vulnerabilities, and work to address them early. Successful acquirers understand that integration is the most powerful available value creation tool. They view their investment in integration as fundamental to the deal. They also understand that integration is different from operating, and must begin well before closing.
Running a business is an ongoing undertaking. The merger, by contrast, is a temporary state of chaos aimed at optimizing the circumstances under which the company operates. You must understand the distinction.
Middle market acquirers can learn much from larger buyers. Ideally, integration plans should be woven into the fabric of the deal. These plans should figure prominently in target exploration, negotiations, and in every stage of strategic planning. Begin integration after closing at your great risk or peril. It’s the most important step, and one that is often overlooked.
About Kratos Capital
Trying to manage a transaction on your own is a fool’s errand. The expertise of an advisory firm can help you better understand the other side’s motivation, and then challenge this knowledge into the best possible deal. As you navigate the process, partner with an M&A advisory team that boasts expertise in your industry. Kratos Capital is a middle market investment bank, and our experienced team can help.