United States: Common Buyer Mistakes During Merger Upswings

Almost every business desires growth as one of its main goals and mergers and acquisitions are a traditional means of accomplishing such growth. When mergers and acquisitions are on the upswing, many companies feel the need to experience some correlative growth. However, actually achieving positive results is a challenge in itself. Here are some of the most common mistakes companies make when mergers become prevalent and the ensuing need results to keep up with competitors. It is important to utilize the advice of an attorney in avoid any of the following situations.

*Failing to adequately perform due diligence

A business may appear to be successful, only to have underlying difficulties and problems. Every acquirer needs to establish the greater, overall picture of the company to be acquired. What is its customer base? What does it own and lease? How much does it owe in debts? Who does it owe? Is it a defendant in a number or variety of lawsuits? Has it paid its taxes in a timely fashion? These are just some of the questions that must be answered long before the deal is finalized.

*Failing to realize that each M&A is different

Some research shows that a company is less likely to do better with a second merger or acquisition than its first. Each merger and acquisition is different. Managers and owners tend to over-rely and make assumptions based on past experience. This even applies to mergers and acquisitions in the same industry, as every company is unique in itself with a different culture and personnel. Buyers may learn the wrong lessons from experience believing that whatever worked for the first acquisition will work again. It may be exactly the opposite: what failed to work for the first acquisition may work for the second. Early success does not guarantee later success.

*Failing to factor the true costs of realizing synergies

Synergies refer to the potential financial benefits achieved through combining companies and typically drive a merger. Synergies expected through a merger may be attributed to many variables, such as revenue enhancement, cost reduction, and combined talent and technology.

Synergies, especially those related to cutting costs, are important during an acquisition. Those that are related to revenue enhancements, such as the bundling of products or cross market sales, are difficult to achieve. Realizing synergies requires other outlays and additional investment which many buyers don’t factor in making a merger or acquisition, thus overestimating the amount of net value they may generate through synergies. It is important to determine if a company’s synergies are in place to boost revenue rather than those that cut costs.

*Making mistakes during integration

Integrating two companies is cumbersome, time-consuming and creates a risk of delaying the proper operation of the business. It is important to devise a detailed plan for integration and conduct any necessary preparation well beforehand. The integration process must be started before the deal is even completed. Many owners wait to assign roles, which may result in an exodus of valued high-level employees.

It is a wise plan to have one part of the company focus on customers and the everyday operations of the business while a separate part focuses on integration. To implement such a plan, many acquirers appoint two individuals to lead during this important transitional period.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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