Transactions can also fail because of problems that are not uncovered or are misjudged during your due diligence process. There are many ways to make mistakes in this regard.

 

For example, at the time of the deal, you simply may not be aware of certain issues-such as new competition, a loss of a major client, changes in the regulatory environment.

 

Second, in some cases, you may have identified a potential problem, but misjudged its importance and decided to go ahead with the transaction anyway. Let us say, for example, that a lawsuit is pending against the company you are buying.

 

Because your lawyers assure you that the case is likely to go in your favor, you buy the company-and then lose the case. In certain types of purchases you may not have to buy the lawsuit with the company.

 

Careful due diligence could minimize such unexpected events, but it will not eliminate them. A degree of judgment and risk will be inherent in almost every M&A transaction.

If you buy a large company that is growing much more slowly, that acquisition could drag down your entire firm's growth rate and could potentially negatively affect its valuation as well.

 

Or, perhaps you take on too much leverage to buy a large company, and then have to cut back on growth initiatives to make your interest and principal payments. Most entrepreneurs are careful not to make acquisitions that jeopardize their core businesses.

 

However, with financing so easy to come by these days for some borrowers, your company could be easily swept up in grand growth strategies that ultimately undermine your success.

#5: Not allocating sufficient resources

 

Successful acquirers treat their M&A activities as another business line. They make sure that they have experienced people in place for every stage of the deal-from identifying acquisition candidates to performing due diligence to structuring deals to integrating the acquired company into their own.

 

If you plan on acquiring a large number of companies, you should first establish a formal corporate development group that can handle smaller transactions on its own; then they can work closely with senior management on the larger transactions.

 

You also may want to create a working team for integration, making sure that acquired companies will fit into your firm's overall strategy and operating structure.

 

When executed properly, M&A deals can be an important element of a company's growth strategy, allowing you to expand into new markets, product areas, and distribution channels.

 

By ensuring that your transactions are aligned with corporate strategy, carefully investigated, thoughtfully integrated, appropriately sized, and sufficiently resourced, you can increase the success of your M&A activities.

 

M & A activities will have a cost attached to doing it properly and giving the newly acquired company a chance to thrive. When acquirers, mostly through inexperience do not allocate sufficient resources to the integration, they may be choking the life out of the new company. Don't try to achieve 100% of the potential cost savings within the first ninety days as often you end up with increased morale issues, more stress on the new staff and poorer results. In other words if its worth doing, do it right.