How is business failure of an acquisition best avoided?
In order to avoid failure, there are three basic questions the buyer must consider in a merger transaction:
- Is the underlying business sound?
- What are the risks that something could go wrong and how can those risks be mitigated?
- How can the benefits of merging these businesses be realized without damaging them along the way?
Depending on a range of different reasons many M&As fail to achieve their anticipated benefits. Regardless of the underlying causes, many of these problems could be avoided by a more effective due diligence investigation of the target. An effective due diligence process will confirm strategy assumptions and the fair price of the target as well as identifying operational, legal, financial and significant merger integration opportunities and issues that must be addressed in evaluating the transaction. As importantly, an effective due diligence process can identify issues early in the process before significant resources have been wasted on an ill-advised transaction. Transactions have a greater likelihood of success if a company creates a structured process, documents its overall M&A strategy, articulates the strategy throughout the organization and M&A team, links the strategy with activities such as due diligence and integration, and monitors success and makes adjustments to the strategy when necessary.