Just because a merger or acquisition is completed on paper doesn't mean the transactions will be a success. The implications can generally be seen 18 to 24 months after the deals close and officials can assess how the combinations contributed to improvements or disappointments on profit and loss statements.
That leads to a statistic to consider if you're thinking about a merger or acquisition: A large percentage of corporate marriages fail and the failure rate has little to do with financial or legal complexities. Rather, it often involves operational difficulties in integrating different corporate structures and cultures, as well as a failure to properly manage employees during the change.
Nevertheless, there are times when acquisitions make sense. Your company may want to acquire people with new skills, or you may be looking for new systems, technology, products or customers. You may even want to make a purchase to eliminate the competition.
Whatever the reason, you will certainly be looking to reduce costs over the long term. For example, a purchase can ultimately generate:
As you can see, M&A transactions can offer potential, particularly if you want rapid change or growth. But the eventual success or failure of a deal depends on how well your company overcomes risk factors and achieves the desired synergies. In one survey of 124 merged companies, 44% said they didn't gain access to new markets, grow market share or add product during the three years after the deals closed.
So before opting for a merger or acquisition, consider the alternatives. Partnerships, alliances, and joint marketing and distribution are just some of the options that might help accomplish the same goals. If you still think an acquisition or merger is the best route, take some steps to maximize the chance of success and minimize the probability of failure.
Starting point: Devise a well-planned strategy that includes realistic expectations and time schedules. Meet with top executives and advisors to brainstorm possible bad events that could happen before and after the transaction. Invite key employees who report directly to top management — you want as much input as possible.
Then, be certain to have:
If it is well conceived, a merger or acquisition could potentially provide your company with a competitive advantage and many synergies. But a failure could end up hurting your company's bottom line, upsetting the stability of its core business and undermining morale. Make a well-informed decision by taking a critical look at your plans, staying objective and preparing for the worst possible scenarios.
After brainstorming possible negative events that could crop up before, during, and after a merger or acquisition, it can help to categorize them into four categories:
Catastrophic. Scenarios or potential demands from sellers that could kill the transaction before or after the deal is signed.
Booby traps. Unexpected events that could kill the deal if they happen.
Run-of-the-mill. Scenarios that are likely to happen but you probably have the resources to deal with them.
Irritants. These events aren't likely to occur but if they do, your company will have no problem responding.
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