Do you know why 7 out of 10 merger and acquisition deals fail? 70% of M&A transactions are doomed to fail just because of poor preparation and unclear strategies. In order to help businesses minimize the risks faced by most business sellers and buyers, GrowthPal is here to talk about seven of the most common M&A pitfalls. If closing an acquisition deal is an art, you have to be Picasso. Otherwise, you can lose the opportunity at any time. Connecting with the best M&A platform to close such deals is always better. You will get expert help in every step of the acquisition process.
You know that M&A transactions involve more people, impact many people, and take sound time to complete. If you commit even a small mistake in the sales process, the cost will be higher for you. In order to avoid mistakes, you should get help from expert M&A advisors.
Common M&A mistakes
1. Having no M&A plan
Benjamin Franklin said “if you fail to plan, you are planning to fail”. It seems so relevant in any M&A deal. No matter whether you are a buyer or a seller, you should have proper planning to reach your goal. In order to reach the goal (purchase or sale of a business), there should be a comprehensive strategy in place. While making the strategy, you should concentrate on diversification, geographic expansion, and talent acquisition. You should also consider how to finance this M&A, who will be the advisory team, the ROI model, and the size of the deal.
2.Overlooking valuation errors
Business valuation is a way to determine the fair value of a company. Valuations act as preparations for an acquisition. In this way, you can understand how much leverage you have while negotiating with buyers. Business valuation should be done correctly; otherwise, you may end up selling more instead of less.
If there are validation errors, buyers may overpay, which is one reason why 70% of M&A transitions fail in terms of meeting their ROI targets. An effective way to prevent such errors is to purchase a business that third-party valuation experts independently value.
3.Assuming too much debt
Maybe the interest rates are exceedingly favorable, but that does not mean you can take more debt than you actually need. In the long run, interest rates may be uncertain; it may increase your monthly principal and make it too hard for you to keep up with repayments.
4.Overestimating growth
A clear growth model is effective as it will help you understand what you should do once the acquisition is complete. Ego and emotions may divert these models and end up making you create faulty growth and synergy models. You should leave emotions behind while dealing with sellers. You should ask questions about the best ways to grow the business. You should also check what strategies they have and what special they are going to do to make it successful.
5.Insufficient due diligence
You know that due diligence is one of the most critical steps in any M&A transaction. Here, you need to consider so many dynamic and moving factors. If it is your first deal, you won’t realize how much you need an M&A advisory team on your side. They will examine all important factors, such as the pandemic’s positive and negative impacts, the business’s historical performance, and recommendations for leverage and debt. Diligence is complicated and has taken a new turn due to the COVID-19 pandemic. You and your M&A advisory team need to consider so much more.
6.Improper balance sheet evaluation
Checking tax returns and the P&Ls is important. But what is more important is checking the balance sheets and evaluating them accordingly. Balance sheets are a reliable source to know more about operating costs. You will have a better idea of how much you need on a daily basis to keep all operations running smoothly. The main goal is to understand the networking capacity needed by the enterprise to keep its door open. You must remember that networking capital consists of current assets and current liabilities.
7.Deficient integration
To make the integration smooth, there should be a key point person. The key point person’s sole responsibility is overseeing everything to do with amalgamation. Here, you need to concentrate on the three most important post-integration areas- people, culture, and communication. You should not treat integration as an afterthought. Integration considerations should be in place during the due diligence phase so that everything runs smoothly from day one. For further help, you should take the help of programmatic m&a platforms.
It is evident that integration touches each and every part of the M&A operations. You need a better plan here. Somebody should govern the integration process.
You do not need to make the mistakes that we have discussed above. You can easily skip and keep your transaction error-free. How? The best way is to hire an advanced M&A platform like GrowthPal. Its next-gen ecosystem allows corporations, late-stage startups, and investors to gather data-driven intelligence and generate actionable recommendations on acquisitions, acquihires, strategic investments, and partnerships.
