M&A - Common Issues & Challenges

By now, we must have convinced you why you must consider M&A as a growth strategy. However, the path is not the smoothest. Statistically, 70% of the mergers fail to effectuate. It is a testament to the numerous issues that could arise during the deal. It is important to have a detailed plan and think the alternatives through before taking the call of merging with another firm. Following is the list of most common challenges in a successful M&A:

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1.????Absence of a good motive to Merge: Some challenges to the deal arise before even a deal starts. There are so many advocates of M&A, that it is hard to find a reason to not enter into such transactions, especially when the firm has most of its door to success closed. However, it is important for the firms to have a robust reason to perform the deal. If the answer to the ‘WHY’ question is strong and clear, it is easy to plan and realize synergies.

2.????The wrong partner: This is the most obvious and most damaging mistake that an acquirer can do. Failure to choose the wrong target company does not only lead to losing the amount of money spent on acquiring it but also the loss of tangible and intangible losses that the union will bring in the future. The cost of undoing the union is high too.

3.????Losing the trust of stakeholders: More often than not the top management focuses all its resources on generating value for the shareholders during the deal. This might lead to ignorance of the needs and wants of important stakeholders like employees, suppliers and consumers. It is important to be transparent and involve these stakeholders in the decision-making process because after the deal these are the only ones who will help create synergies.

4.????Insufficient Due Diligence: It is important to conduct thorough due diligence about the target company, the expected result of the deal and industry practices. If the due diligence conducted is inadequate or insufficient, it can result in enormous legal and financial loss to the acquirer. Efficiency is important but there are no cutting corners with regard to due diligence. This is one of the most common issues to arise and at the same time one of the easiest to avoid.

5.????Not following the Economic instinct: There is a temptation to go ahead with the deal once it has begun. Even though the economic sense suggests aborting the mission and to stop the deal, sometimes the management goes ahead with it, considering the investment done so far. This temptation should be avoided, and the answer of ‘WHY’ should be kept in mind at every stage. When the ‘why’ seems to lose itself, the management should not hesitate to stop the deal.?

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This is the fifth article in a series on many interesting aspects of Mergers and Acquisitions by our student researchers, Amrutha Alapati, Annapurna Prabhu, Astha Agarwal, Aradhya Singh, Swasti Patoria and Aayomi Sharma.

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