When done right, an acquisition can dramatically accelerate the growth of a company. However, experience tells us that deals often fall apart. Each year thousands of dollars are spent by buyers and sellers on deals that go nowhere. Here are 3 top reasons M&A deals fall apart.
1. Lack of Strategy – Failing to have a strategy is the number one reason that a lot of acquisitions fail. Without a single clear purpose driving your acquisition, you risk acquiring a company that does not help in your growth strategy. It is important to try to fulfill one strategic need. If you try to meet multiple needs, you may end up meeting none of them. If you have multiple needs, you should pursue multiple acquisitions instead of trying to achieve it all in one acquisition. Without a firm grasp on why you are acquiring another business, it is easy to get pulled into doing a bad deal just for the sake of getting one done.
Tip– For good results, be sure to select only one reason for acquiring a company.
2. Getting Too emotional – Acquisitions can be highly tense and emotional even for the most level – headed executive. We all have biases that could cloud our judgment. It is possible to get attached to a specific acquisition prospect even though it is not a good fit for the company. The best way to remain objective is to develop criteria and metrics and to benchmark your decisions. If the company you love is truly the right strategic fit, it should meet your criteria. Objective tools allow you to take a step back and apply the same standard across all prospects.
Tip- Let data be the ultimate driver of your actions.
3. Moving too slowly or too quickly- It is imperative that you maintain the right balance in the M&A process. If you move too slowly, you will lose deal momentum. If you move too quickly, you may miss critical details. We recommend going “slower” during the foundational part of the acquisition process when you are developing your acquisition strategy, criteria, and team. Establishing a firm foundation will help you move swiftly in the later stages of the deal once you begin contacting and meeting with owners.
Tip– By preparing early and thoroughly at the beginning of the M&A process, you will be nimble during the later stages of the deal.