Common Challenges During the Mergers And Acquisitions Process
Businesses merge or acquire other companies to expand their market share and reduce operational costs. However, even the most experienced companies can make mistakes during a merger and acquisition (M&A) deal that can cause the deal to fall apart. To help your mergers and acquisitions deal succeed, here are common M&A mistakes that you should avoid.
Overestimating Synergies
Businesses often project an increase in revenue or cost reduction when acquiring or merging with other businesses. However, the projected advantages may be higher than what the company will eventually get.
Ideally, the best strategy is always be conservative when projecting the expected returns. For example, reduce the projected revenue twenty five percent. If the conservative projections are still attractive, you can feel more confident proceeding with the deal.
Failure to Involve Employees of Both Firms
Employees of both firms will have anxiety, doubt, and uncertainty over the change in the business model. The resulting emotions will create an unproductive environment and make it difficult to streamline the operations of both companies. Although anxiety will always be there during an M&A deal, management can take steps to minimize its effects on productivity and overall profitability.
Failure to create cohesiveness between the two teams will create an “us-versus-them” mentality. Employees will start to work in silos and struggle to find their roles in the new business arrangement. In some cases, internal debate and further tension can ensue, preventing the business from taking off quickly.
One way to mitigate this is to properly communicate with employees about the need for the M&A and how it will benefit them. Also, find a way for both teams to collaborate and learn from one another.
Lack of Well-Structured M&A Process
The M&A process involves accountants, attorneys, and partners working together on a single transaction. Businesses need a clear and well-laid-out M&A process to prevent any doubt.
However, some businesses fail to properly define the requirements, list of stakeholders, and various phases. The businesses also fail to show the interconnections among these processes. The lack of a holistic framework interferes with the team and partners’ confidence and makes it difficult to track progress and maintain control of the entire process.
Businesses can achieve transparency and properly track the M&A process with minimum investments. For example, the business can invest in a virtual data room to track each process.
Overlooking Transition Time
Some business managers expect normal operations to resume as soon as the M&A deal is over. Failure to devote resources and time to the transition process can stress employees and interfere with post-merger success. You might also fail to notice duplication of roles, with employees from both firms doing the same job. The solution is to have a transition period of a few months where you get to define roles and create a consolidated team.
Failure to Get the Appropriate Licensing and Applications
The businesses involved in a merger or acquisition have different data environments and tech stacks. Both technology assets help during and after the M&A transaction. However, a lack of proper software licenses can reduce productivity and increase the cost of the transaction. In addition, improper integration of IT resources can confuse some employees and lead to the disruption of productivity.
Before you embark on a merger or acquisition, your IT team must communicate with the other company’s IT team. The two teams should find the right applications that will help with the transition without unnecessarily increasing the IT budget. Your company should also get the proper licenses for all software.
Not Knowing How We Can Help
The M&A process has many challenges, and the deal can fall apart due to several mistakes. Sun Mergers & Acquisitions is here to help you make the best decisions and streamline your M&A process. Our primary focus is handling the sale of privately-held companies. Contact us to benefit from our years of consulting experience.