Major Pitfalls to Avoid in M&A Transactions
It is a good practice to occasionally restate the fundamental criteria for assuring that an Acquisition or Merger stays on track and arrives at a successful conclusion. While there may be unforeseen or uncontrollable circumstances which preclude deal success, there are pitfalls that can be avoided. The following are keys to avoiding some of the major pitfalls to successful deal completion and integration.
1. Planning and execution are essential to the M&A process. An M&A strategic plan, a deal transaction methodology, and a post-transaction integration roadmap will set the specific standards that must be followed at each phase of the process. These standards will be the criteria by which deal success will be measured.
2. Appoint a deal champion who will be the primary point of contact and decision maker as the deal progresses through its various stages to completion. The champion should have the full support of management and be accountable for the success of the transaction and integration. The champion will keep the deal on track through the difficult purchase agreement negotiations.
3. An automated M&A software system should be fully operational and the various team members fully trained at the earliest possible time in the deal process. This will ensure the M&A methodology will be followed for each element of the transaction. It will also provide a reporting system to manage difficult and competing timetables, and assure closure of all open issues.
4. Substantiate that each level of due diligence is thoroughly conducted and completed: a. Preliminary Review before the Letter of Interest (LOI) is sent, b. Initial Due Diligence before the Offer Letter is issued, and c. Full Due Diligence before the Definitive Agreement is signed. Unresolved issues or incomplete and inaccurate information can nullify the anticipated synergistic benefits that the buyer expects from the combined entities. Each step in the process is necessary. Don’t fall in love with the deal. Regardless of the well wishes from supporters in the acquirer’s company, or pressure from internal or external experts, each deal must stand on its own merits.
5. Attempt to develop multiple, convincing business scenarios for maximizing the transaction. Strategic acquisitions should result in significant changes in the acquirer’s business. Look for synergies that may arise from changes to the acquirer’s existing systems.
6. Be creative with the deal financing, finance structure, and financial terms. A mix of the acquirer’s equity, cash from reserves or new debt at favorable interest rates may be attractive to the seller. The transaction could be for the purchase of only the assets, leaving the liabilities for the seller to handle separately. Purchasing all of the sellers stock net of any debt may be an alternative. Research of the seller’s deferred tax benefits and maintaining separate corporate entities may provide tax savings to the buyer.
7. Don’t put off evaluating a transaction due to lack of internal staff. If an opportunity presents itself that is squarely within the parameters of the M&A strategy, seek the assistance of investment bankers and service professionals who can utilize the acquirers M&A methodology to move the deal through the process.
References: 8 Reasons M&A Deals Fall Through By Marv Dumon