Top 12 Merger & Acquisition Risks

1. Choosing an Inappropriate Target

“We paid too much. Is it really a good fit?”

Don’t let the desire to get your competitor’s customers cause you to pay too much for their company. There is a pretty good chance that their customer won’t stay anyway. Another tactic we commonly see is to buy “a geography” to expand a sales area. The risks there may be with your ability to serve (logistics) the expanded area effectively.

2. Insufficient Discipline, Depth and Breadth of Integration Planning

“Lots of activity with few results!”

Integration tasks and project management are common in your business, but often your integration manager has never managed a project at the whole-company level and across an acquisition. There is no time to “make it up” – get experienced help.

3. Declines in Productivity and Operational Performance

“Not enough hours in the day!”

Uncertainty about jobs, customers, suppliers, responsibilities, and structure is like walking through deep mud. It slows an organization down with the added distractions of second-guessing, “me issues”, and customer indecision. Communication and expectation management is critical during a transaction.

4. Culture Clash

“They don’t like us. We’re not so sure about them. Morale is sinking!”

Culture is best defined as “how an organization makes decisions”. Is it top-down, autocratic, concentric, bureaucratic…? Your culture will be different from theirs. The players and their responsibilities are different. During the integration, you have to create a temporary culture (that may become permanent); strong leadership and decisive action are required to do this.

5. Inappropriate or Ineffective Leadership Actions

“The organization lacks backbone!”

The top leadership will be hit with every little issue until a new decision making structure is put in place. Mergercoach’s Integration Project Structure can be implemented immediately and can be temporary. It is empowered with budget and associative resources (like people, span of responsibility, and capital). Keep the structure non-political and dominated by the buyer-side’s staff.

6. Loss of Key Players

“Strong swimmers jump first!”

The strong swimmers (aka your most talented and needed employees) will jump ship first. The competitors will be trying to recruit them away when you are the most vulnerable and distracted with all of the little stuff until a structure is in place. Aggressive re-recruitment actions (bonuses, special appreciation, and the like) are required to keep your best people on board!

7. Power and Turf Struggles

“Continuous “me” issues and politicking!”

The fear of losing one’s job or position of power is a strong motivator for politicking and back-room dealing. Again, your strongest ally will be communication and a solid re-structuring plan. Transparency with the key employees will help them understand the future of the company and their role in it.

8. Communications Are Unclear and Infrequent

“Too little, too late!”

Loss of control is hard for most people. Add lack of or incorrect information on top of that and they will lose faith in the future and harbor resentment towards the company. Having a solid communication outline will help you to walk them through the process without losing them to “what-ifs”.

9. Revenues Slip, Costs Escalate, and Stock Values Decline

“We turned our back on our customers & suppliers!”

While you focus your attention inward, trying to re-build your organizational structure and keep key employees, it becomes easy to neglect your customers and suppliers. This happens all the time to organizations going through an acquisition. This is why it’s necessary to re-recruit your salespeople and customer service representatives. They need to feel good about their future and then can focus their energy towards retaining and satisfying your customers. Your supplier relationship liaisons need the same treatment. They are the link to keeping your supplier resources in place.

10. The Transition Takes Too Long

“Maybe we will get it right if we take our time!”

Lengthening an integration process will only hurt you in the long-run. For the most part, people won’t embrace the change until they have to. Inactivity leads to second guessing which leads to fear and fear-based decision making. A lengthy integration process is usually a result of poor planning, not because that was the intended goal.

11. Lack of M&A Experience and/or Expertise

“Our existing management tools don’t work for this!”

There is a reason the majority of acquisitions fail to meet their goals. Your in-house, top-notch project managers or senior executives are not likely to be great acquisition managers. Why should they be? Mergercoach has spent decades and hundreds of acquisitions learning and understanding all the moving pieces of a transaction like this. They are very complex, not only from a due diligence perspective, but also the interpersonal perspective.

12. Tangled Decision Making

“It takes 3 days to get a memo approved around here!”

Integration planning is so crucial to every aspect of the business. A new decision making structure is a key component to this plan. Preference the buyer’s side management personnel when building your new structure, but be sure to give power to those on the seller’s side you need to keep. Set parameters for decision making around specific areas – ex. Joe Manager signs off on all our marketing efforts during the initial 90 day period while the marketing departments are being combined.

Be sure to check out Mergercoach Tools, like the Acquisition Project Plan or the Communications Template, to help your team plan for these risks and stay ahead of them.