M&A Series: 5 common mistakes in the M&A process for buyersrussonxiao
Buying a company is not an easy task and is usually very time-consuming. The merger and acquisition (M&A) process require careful planning.
Here is a list of most 5 common mistakes made by private companies attempting to make an acquisition:
1. Not doing a specific and complete due diligence.
Even though standard checklists can be used for due diligence, they are usually not enough. Buyers should examine everything they need to know about the target’s business. A detailed analysis requires to develop a unique due-diligence plan for each target and deal. Shortcuts at this stage can be extremely expensive down the road.
2. Not identifying the organizations’ cultural issues.
There are many situations where the target can have a culture and attitude very different from the buyer’s attitude. This can kill the implementation of a promising acquisition, especially if the target is located in a different country/continent than the buyer. Therefore, understanding the differences between the companies’ policies, practices, processes, and procedures will help smooth the integration processes.
3. Not doing a SWOT (strengths, weaknesses, opportunities, threats) analysis.
There are many things to be checked when making an acquisition (financials, management team strength, operating structure and systems, fixed assets, competition, and organizational capacity). Lack of customer diversification is one of the biggest threats to success. The SWOT analysis will help identify potential synergies between buyer and target company.
4. Not getting the right professional help.
Most of the time, owners think that they can save money by doing acquisition alone without professional advisers. However, it has been proven that business owners using professional M&A advisers have a much greater chance of success when buying or selling a business than those who do not. In many situations, a financial advisor or an investment banker experienced in M&A can bring value to the table by doing the following:
- Assisting the buyer and its legal counsel in developing an optimal sale process
- Coordinating signing of NDAs
- Finding and contacting prospective targets
- Assisting the buyer in properly analyzing the online data room
- Coordinating the buyer’s due diligence requests with the seller answers
- Helping to compare target value with competitors’ value
The advisor chosen should be someone of confidence, that can demonstrate its previous experiences and past deals.
5. Paying too much for the target.
It is important to use different methods to determine purchasing prices such as market benchmarking, DCF calculation, etc. One method may be more beneficial to one party than the other so make sure to compare all the methods to ensure a fair price and have a clear vision about the target’s future profitability. If you can’t work out a fair price with the seller, be sure to walk away and go for the next one. The world is full of opportunities, the most important thing is to be patient enough to get it.
If you are considering acquiring a company – feel free to contact us, to learn how we can support you with the process.