The successful number of mergers and acquisitions can be a little daunting. It is not great (around 3 out of 10 are expected to succeed) and these statistics can really take away the draw. After all, if there’s such a high chance of your business failing after a merge or acquisition, why bother with one at all?
While the 3 out of 10 success rate include both mergers and acquisitions, it’s important to remember that the two aren’t identical. In fact, while a merger combines two companies into one, an acquisition is where one company owns at least 50% of another. They are not necessarily one business in an acquisition, but the success rate is still relatively low.
Stoneridge Partners explains that when it comes to understanding why mergers and acquisitions fail, there are a few things to remember. First, there are companies that are able to successfully go through with a merger or acquisition so it’s not entirely impossible. Second, in order to ensure success, you have to be ready to put more work into it than you might initially think.
But why exactly do mergers and acquisitions fail for often? Well, let’s look at some of the facts.
- Poor Communication
One of the biggest problems with mergers and acquisitions that can lead to failure is poor communication. Whether this is just communicating over the phone or deciding that certain information isn’t important, any lack of communication can lead to disaster.
Mergers and acquisitions are not a quick, two week thing. You’ll have to work together for months, maybe even more than a year before the dust has finally settled. Throughout this time, it’s easy to start being more relaxed about communication methods and lose some energy. It’s vital that you don’t let the long time span ruin your communication methods though as this will almost certainly lead to failure.
- Misleading Information
If one or both of the companies involved presents misleading information, you’re bound for disaster. When considering an investment, it may look good on paper, but sometimes papers lie. Double check the investment value before you commit to it.
Look into any hidden debt or unstable financial records. The last thing you want is to acquire an enterprise that is set to fail soon. In return, if you are the one selling your business, be upfront about any and all problems. Your investor may be more likely to go through with the acquisition if you’re honest the first time around and if they don’t, then it’s a sign you should make some changes.
- Unknown Motivation
What is the motivation behind the merger or acquisition? Both parties should have a clear, confident answer to this. If you’re selling to someone who is vague about their motivation, perhaps you should reconsider. However, most investors will have their motivation already thought out and prepared should you bother to ask.
If you are the buyer, the same goes for you. It’s important to understand why someone may be willing to sell or merge their business with your own. Make sure your motivation matches up with theirs or is at least compatible. If someone is wanting to sell their business in order to better benefit their employees, but you are looking for a high-money investment, the clash of values could cause problems further down the line.
Understanding the motivation of the other party is a huge factor albeit it may not seem like it at first. Make sure you both understand why you’re going through with this and if either of you don’t agree on something, consider a different option.
- Poor Representation
It’s important that the lawyers on both ends of the merger or acquisition are accurately representing your company. You need to work with a lawyer you trust and who you feel like will represent your business well.
If you already have a lawyer you work with, ask them for advice on what to do. It may come up that they recommend going through a different lawyer and not them. While this may seem at first like it’s a little deceptive and unreliable, it’s important to trust your lawyer in making this call. Your lawyer will know where their weak spots are and since you know and trust them already, you can be certain that such a decision was made in your best interest.
Poor representation can bring failure to a merger or acquisition quite quickly, so it’s important to be certain your lawyer is accurately representing you. If not, you risk the whole transaction.
- External Factors
Of course, there are always things well out of your control that can happen. If the economy collapses or there is a problem with the business you’re working with, you may not be able to successfully complete the merger or acquisition. This can be frustrating as there is nothing you can do about it yourself, but it’s important to remember there is the possibility.
Attempting a merger or acquisition is difficult. The low success rate can be discouraging and if it ends up taking longer than you originally planned, there is a higher risk of failure as both parties become more disappointed. Don’t let all the past failures keep you from going through with a merger or acquisition though. There are those businesses that succeed and the more committed and clear your plan is, the higher your chances of success will be.