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Keys to a Successful M&A

A merger or acquisition (M&A) can have a huge impact on your business, regardless of if you are the seller or the buyer. Mergers and acquisitions can offer business owners the opportunity to create more value for their business, expanding beyond what they could do alone. The process of merging or acquiring a company, however, can be a lengthy, complicated process.

Why Would You Pursue an M&A Transaction?

First, let’s discuss why you would decide to pursue an M&A transaction. Typically, the objective behind a merger and acquisition is clear from the start.

Some of the most common reasons that business owners pursue an M&A transaction include to:

  • Improve company performance
  • Improve a product’s time to market
  • Reduce excess production capacity
  • Acquire a company’s technology, products, expertise, or resources
  • Lower operating costs by making use of economies of scale

Sometimes, an M&A transaction occurs as a result of seeing potential in a younger company.

Regardless of why you’re considering undergoing a merger or acquisition, it’s important for the success of the transaction that both parties stand to benefit from the deal.

What Makes an M&A Transaction Successful?

According to Harvard Business Review, about 70 to 90% of mergers and acquisitions fail. This considered, how can you make sure your business is a part of the slim 10 to 30% of companies that succeed in this stage of your business?

Mutual Benefit for Both Parties

As we stated above, part of a successful M&A transaction involves a mutually beneficial deal. Both parties should experience some kind of gain, even if that means simply avoiding a potentially negative alternative.

A mutual benefit is essential to your M&A success, as you need to be sure both parties are fully committed to the deal. If one company stands to gain a significantly greater benefit, it may be a sign that the other party may not be as committed to the transaction–which could lead to the M&A’s demise.

Vision Alignment

Another element that leads to success in a merger or acquisition is a clear, shared vision of the future for both companies. For both the buyer and the seller, what does the company look like post-merger or post-acquisition? Having a clear understanding of what this looks like will allow for a smoother transition.

Uncover Your Plan B

In any plan where negotiations between two or more parties are involved, there’s a greater chance of failure. If negotiations stall, hit a dead end, or combust, what happens to your company? Set a plan B before this situation occurs, so you can confidently move into negotiations.

Set a Clear Timeline

Lastly, be sure to set milestones and deadlines throughout your M&A transaction. M&A transactions have a reputation of dragging on for months, even years at times. Having a set timeline with clear milestones and goals is essential to keeping the deal on track.

Why Do Some Merger and Acquisitions Transactions Fail? 

As we mentioned above, the majority of mergers and acquisitions fail. But how is this failure defined? A merger or acquisition failure is defined by whether or not the transaction met the original objective of the transaction.

With that being said, there are a few things to look out for before you undergo this process:

Culture Fit

One of the primary reasons that M&A transactions fail is due to the cultures of the two companies coming together. If the two cultures clash and leadership is unprepared, you may run into quite a few issues. This clash can carry over to your customers, and your original company can lose what made it successful in the first place.

Lack of Due Diligence

Performing an in-depth due diligence process prior to your M&A transaction is essential to the success of your deal. If you have an insufficient understanding of the other company’s financials, processes, and overall business, you may be blindsided post-transaction.

Integration Planning

The integration process after a merger or acquisition occurs can be lengthy. This integration comes into play in every aspect of the business, but buyers should pay specific attention to the technology integration, as it tends to be the most complicated and time-consuming.

Overly Optimistic Forecasting

Buyers are typically overly optimistic regarding the savings they will experience from acquiring a business. It can be difficult to predict operational and manufacturing costs, as there are often unforeseen complications that arise. 

Now that you understand what it takes to experience a successful M&A transaction, you can enter the planning stage. Whether you choose to pursue a merger or acquisition or a different avenue for exiting your business, take a look at this article to start preparing to sell your business.