HR & Management

Why so many mergers and acquisitions fail

3 min read

04 April 2011

Sir Philip Green once said: “Any idiot with a cheque book can buy a business”. The art is in buying the right one at the right price and knowing what you want to do with it. Easily said, too rarely done.

Why do so many acquisitions, JVs and business investments (let alone political decisions and key hirings) fail to deliver on their original expectations?

The most common reason is either a lack of effective due diligence or, perhaps even worse, where the facts are available but they get blown away by a gust of euphoria and poor planning.  

I get as excited as the next person by new opportunities – and gut instinct should definitely not be undervalued. But if you want to maximise the chance of success, it’s worth taking a good hard look at the facts, particularly those beyond and behind the numbers.

Here are ten questions to ask yourself before you plunge into a merger/acquisition:

1. What would be the real impact if the deal didn’t go ahead? What are you actually buying (customers, products, people or cashflow)? How are you going to add value?

2. Have you fully assessed your other options? Could you make, buy, licence, partner, hire?

3. Who is driving the timetable? If you need more time, find a way of getting it. Don’t be rushed.

4. Have you got a signed heads of agreement in place before instructing lawyers? It can save a lot of time and money.

5. What key messages are you getting from the commercial/technical due diligence/customer research teams? Do the customers have a point you need to address? Little issues can grow into major ones post deal.

6. How good are the people and what are their reputations like? If you have doubts about certain people, you need to be ready to address these. You cannot afford to compromise on integrity or skills.

7. Do you have a 90-day plan to completion day, agreed with the incumbent management? This can make a massive difference to the overall success of the deal.

8. How will employees, customers, suppliers and competitors respond to the news and what are you going to do to address/anticipate this? A Q&A for each key stakeholder, preferably with benefits to them, helps focus the mind on what really matters.

9. What additional investment is required beyond the deal itself? If you are doing a refurb project on a property, you should make provisions for it to take longer and cost more – buying a business is no different.

10. Never be too afraid to pull out at the last moment if something significant smells bad – it’s amazing how sometimes deals get done just because of momentum.

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