Mergers and acquisitions involve the combining of the assets of two or more companies (merger), or the purchase of one company by another (acquisition). Even though they are fairly common in the business world, mergers and acquisitions have only about a 50% rate of success – which means that half of all M&A deals fail. This can have serious implications for all businesses, and mid-market companies can be especially hard-hit because they are less likely to absorb a deal gone wrong. Mid-market companies for this reason should be sure to check out Generational Equity Reviews to help find expert assistance. Here are some of the common reasons why M&A deals don´t have positive outcomes.
Lack of transparency – Especially if the seller is highly motivated to sell, it may be the case that there was not full-disclosure of the information needed for the buyer to make an informed decision. This could include hidden financial details, buried performance forecasts, or some other information that has a bearing on the true costs of the deal for the buyer. This can lead to nasty surprises and unexpected losses.
Unenthusiastic leadership – Particularly in the case where a merger or take-over is not entirely welcomed, the lack of enthusiasm for a deal on the part of leadership can scuttle the deal’s success. Whether it is measured in terms of a half-hearted approach to negotiations, an unwillingness to find fair solutions to complicated issues, or a generally pessimistic attitude towards the deal on the part of the management team, this sends currents of anxiety and a loss of morale through the company as a whole. Key personnel may decide to abandon what they perceive as a sinking ship, and productivity may suffer as well.
Overlooking Customer Concerns – In all cases, it will be vital to demonstrate excellent customer service to assure the existing customers of the company being taken over that their accounts and relationships will be seamlessly managed within the new corporate structure. Customers who feel that they might be left in the cold or who worry that new arrangements will end up costing them more in the short or long-run may seek other providers. Without careful planning, M&As can easily disrupt sales as new lines of responsibility or corporate practices are being hammered out by teams that need to learn to work with each other. Customers can easily fall through the cracks.
Bad Winners and Poor Losers – In hostile takeovers especially, deals can turn sour if the “losing” side feels that its interests have not be represented, or long-term expectations encouraged within the previous corporate culture are not longer being honoured. Established practices may be overturned without explanation or consultation, and people who had previously been on track for promotions may feel that they have been pushed off that track as a result of the new circumstances. The new team may not be sensitive to these considerations, and the workplace and management team can easily become divided, with obvious implications for the business as a whole.
These are just some of the many reasons that one business may be motivated to merge with or acquire another.