Mergers and Acquisitions occur on the regular, and for different reasons: buying up competitors to expand market share, acquiring a complimentary business to provide a suite of services to existing customers, or simply because a great opportunity exists to enter a new market and diversify the company’s holdings. But while everything may smell like roses going into the deal can quickly turn to disaster if an integration plan was not part of the M&A planning process. Here are some of the common risks companies face with a poorly executed M&A plan.
A successful merger or acquisition is a marathon, and often business buyers find themselves preparing for a sprint—setting up the financing and transfer team, but fail to realize that a successful integration will take time, and before long, enthusiasm dies out, along with team morale and follow through on integration milestones. Bringing in an experienced M&A advisor at the outset of the merger and acquisition project can help buyers prepare not only for structuring and executing the deal, but also the follow-through of integrating with their existing team, technology, and product matrix.
Profitability & Financial Resourcing
Identifying and acquiring a business that’s already profitable is only part of the equation. Without proper due diligence a buyer runs the risk of unknowingly buying a waxed Pinto for the price of a Maserati. Failure to identify bookkeeping tactics designed to boost the bottom line or merging a business with too high of an operating cost for the buyer’s intent (bundled products, SaaS instead of licensed installs of software) can lead to a decline in the parent company’s profitability, making everything from expansion to securing financing a greater challenge down the road.
Even after poring over the company records and working with the seller’s attorney, there can be legal issues that arise, some that are known and present themselves as new managers take over, others are a complete surprise, such as licensing and patent challenges, infringement, dismissed employees, among others. An experienced mergers and acquisitions advisor can help mitigate risk with well-scoped deal contracts which limit the buyer’s exposure on past grievances.
Buyers may find themselves relying on their general corporate attorney to assist with the acquisition of a new company, however most business attorneys do not have adequate experience or resources to conduct a thorough due diligence nor prepare a proper m & a plan for after the deal’s executed, leaving the buyer to stumble over one or many integration hurdles. Beginning your merger and acquisition process with an M and A professional will provide clarity and peace of mind throughout the buying and integration process.