News and Insights on M&A for the Middle Market
If you pursue acquisitions, there is a high chance of failure. That sound harsh, but about 70% of all mergers and acquisitions fail. Deals fall apart before the transaction closes, suffer integration issues post-closing, or simply do not yield the return on investment that was expected. Think about the disastrous "merger of equals" between AOL and Time Warner in 2001.
On the other hand, when done right, acquisitions can rapidly grow your company, setting you up for long-term success. Examples include Disney acquiring Pixar in 2006 in order to dominate the animated film business or Facebook acquiring Instagram to gain new users and develop mobile expertise.
For those of you who want to grow successfully through M&A, here are five of the biggest mistakes to avoid.
1. Lack of strategy
Failing to have a concise strategy is the number one reason acquisitions fail. Either firms have no strategy at all or they try to use one deal to fulfill multiple strategic needs. Both can hurt your chances of a successful 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. On the other hand, if you are trying to fulfill multiple needs with one acquisition, you risk fulfilling none of them. Having a single, clear purpose for acquisition keeps you focused and generates results.
2. Planning as you go
If you start a journey without a map, you are probably going to end up lost in the woods. It is always best to develop a carefully planned strategy before jumping into pursuing deals. Most companies have a manual or instructions for hiring employees, but no acquisition roadmap even though it is much easier to hire and fire someone than it is to buy and sell a company. In particular, if you have never done an acquisition, following a plan will keep you on track and help you avoid pitfalls.
3. Evaluating one deal at a time
Only evaluating one deal at a time is like putting all of your eggs in one basket. If the deal falls apart, you have to begin the process from square one and you will have spent a great deal of time and money with nothing to show for your efforts. A better approach is to evaluate multiple prospects at the same time. Having multiple deals in the pipeline gives you more options and increases your likelihood for success. If a deal with company A does not work out, you still have company B, C, D, and E to fall back on as options.
4. Getting too emotional
Humans are not rational, logical and objective. We all have our biases and subjective perspectives, which can cloud our judgement. Acquisitions can be incredibly emotional and tense, even for the most level-headed executive. Sometimes leaders become blindly attached to a specific acquisition prospect, even though it is not a good fit for the company. One 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! If it does not, you may need to let it go. Objective tools allow you to take a step back and apply the same standard across all prospects. Naturally, there will be some level of emotion involved in M&A, but data, should be the ultimate driver of your actions.
5. Moving too slowly…or moving too quickly
It is essential to balance thoroughness with speed. 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. Once an owner says "yes," your ability to respond quickly is essential to maintaining momentum and excitement. If you hesitate during this stage, the owner could become discouraged or lose interest in the deal. By preparing early and thoroughly at the beginning of the M&A process, you will be nimble during the later stages of the deal.
Acquisitions are a significant undertaking that can jumpstart you company's growth. Learn from the mistakes of others and make sure you avoid these common pitfalls in order to maximize your chances for success.
Amazon to buy Souq.com
Amazon will gain a foothold in the Middle East with the largest ecommerce site in the Arab world. Kuwait, Saudi Arabia, and the United Arab Emirates are growing markets with young, tech savvy populations.
Intel to buy Mobileye
The $15.3 billion purchase of the autonomous driving startup is biggest acquisition ever of an Israeli company. Moving into self-driving vehicles is part of Intel's strategy to build up its position in emerging areas of computing.
Conagra acquires Thanasi Foods
Conagra adds Duke's meat snacks and Bigs roasted seeds, two fast-growing, premium brands to its portfolio.
Bigger is not always better
You do not have to "go big or go home" when it comes to M&A. Often a carefully planned and highly focused acquisition can be more powerful than a multibillion dollar deal.
Acquisition is not just about gaining scale in order to grow, but about helping your company become more focused and effective so that you can achieve your long-term goals. Thinking about strategy rather than size will help you execute the right deal for your company.
The latest events from M&A U™
The First Date: Contacting Owners and Successful First Meetings
Making first contact with an owner, especially of a "not-for-sale" company, is your opportunity to begin a positive relationship that may lead to a deal.
1 PM EST – April 20, 2017
CPE credit is available.
A New Look at Due Diligence
Due diligence is about more than just looking for red flags. Learn how to use due diligence to maximize the opportunity for success in your next acquisition.
1 PM EDT – May 18, 2017
CPE credit is available.
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