According to a KPMG study, 83 percent of mergers don’t increase shareholder returns. Historically, about two-thirds of all mergers tend to lose value on the stock market. While many problems associated with failed mergers are concrete—mismanagement of risk, strategy, price, clashing corporate cultures, and limited management capacities—the underlying reason is more abstract. Failed mergers and acquisitions can be comfortably attributed to flawed motivation, driven by fear.
While this may all seem discouraging, there is hope if you’re prepared to face the unavoidable challenges and prevent the ones that are.
Here’s a look at some of the challenges that come with mergers and acquisitions and how best to overcome them.
If you’re lacking a justifiable answer to the question “why are we doing this?” your merger or acquisition has run into its first underlying problem. It’s highly likely that more problems will begin to show because of this. Avoid this problem by revisiting the basics. Rethink your goals and ask yourself whether this merger or acquisition is even the best way to achieve them.
Targeting the Wrong Company
Targeting the wrong company is undoubtedly a red flag already raised while you were looking for potential companies to acquire. Perhaps there was one particular startup that caught your eye, and you figured you needed to get a hold of it before anyone else did. Why then do thousands of acquisitions fail? This is perhaps due to a bias working under the heart of all M&A processes—as soon as we make the decision to acquire a company, we believe success means closing the acquisition. Nothing could be further from the truth. Successful M&A depends on acquiring the right firm, not acquiring a company for the sake of it.
Putting Too Much Faith in Synergies
In business, synergies occur when one plus one is more than two. Synergies can look like increased cost savings or revenue as a result of the transaction. Of course, companies find exploiting synergies to be a strong motivator. However, they also tend to be overestimated.
To avoid this pitfall, it’s always wise to be conservative in your approach. If you estimate a million dollar in savings, divide that by two.
If you’re looking for the next company to acquire, you’ll need an experienced M&A partner to help with the difficult process.
We are an esteemed M&A business advisor with decades of experience in helping clients maximize their ROI through streamlined acquisition processes, strategic exit planning, and thorough business valuations.
Contact Gulfstream Mergers & Acquisitions for more information or call at 1-704-892-5151.