About 80% of mergers and acquisitions fail or fail. So what is the main reason for the disappointment of investors? And what are the main points to consider for arranging a successful M&A transaction? Here is more about it.
M&A deals in business practice
The strategic goal of any company is business development, increasing its market share, and gaining a leading position in the sector, the economy of the region, the country, and the world stage. One of the important steps in achieving this goal is business scaling. Some companies go through a long evolutionary path to grow in size, while others buy ready-made specialized businesses.
M&A (mergers & acquisitions) is the magic 3 letters for ambitious market players. M&A, or mergers and acquisitions, is consolidating two or more companies. This business process mostly takes place with the participation of two companies. Combining two or more businesses is to try to achieve synergy. As a result, the new company (whole) will be larger and stronger than the two former companies.
Key M&A considerations
M&A transactions are complex business transactions from legal and financial points of view. Therefore, it is necessary to assess many risks, take measures to minimize them, assess the prospects for a merger or acquisition, properly execute all documents, and ensure that the procedure is completed in accordance with regulatory requirements.
According to a study by M&A experts, most participants in a business combination consider risk management, transaction evaluation, transaction management, negotiation, and project planning the most important. So, we would like to list a few stumbling points in the M&A process that should be considered:
- Purchase price expectation
One of the main stumbling blocks when selling a company begins even before the actual M&A process. Incorrect purchase price expectations of the shareholders are often one of the main reasons for the failure of company sales.
- Choosing the right time
The right time to sell a company is a decisive factor in the success of a company transaction. The point in time is often set too early (lack of business model) or too late (the company is in trouble) by the shareholders of a company.
- Choosing a consultant
If you are planning a major deal, you cannot do without competent legal support. A lack of trust in the advisor often leads to information asymmetries that can disrupt the M&A process and cause it to fail.
- Conduct due diligence
They must first be properly structured to minimize the risks of mergers and acquisitions. We are talking about evaluating M&A transactions from different points of view – legal, economic, tax, etc., followed by an analysis of weaknesses and their subsequent elimination. Evaluation of M&A transactions is a serious complex event that allows you to assess how the planned merger will benefit each party, what risks threaten, and how they can be minimized.
- Implementing the data room software
Modern companies use virtual data rooms to organize secure collaboration and data exchange in real-time. Electronic data management allows you to follow the progress of each project with one click. You can monitor your employees’ work and detect problematic moments in the business. The data room will create a roadmap for decision-making, set the pace of work, and the organization will be managed in the online mode. Thus, every decision will be made by the right people at the right time in the same rhythm without hitches and sagging.