5 Reasons Why Mergers and Acquisitions Often Fail

Mergers and acquisitions often fail because the businesses involved do not think things through enough to produce a viable result. Reasons vary from case to case such as losing the focus on the desired objectives, or failing to devise a plan that includes suitable involvements and control, or the lack of a properly designed integration process, and sometimes all of the above.

Mergers and Acquisitions

A qualified mergers and acquisitions attorney can help solve many of the following problems before they become major problems in a lucrative business deal. The key is to look for the elements that may lead to failure and correct them as they appear.

Here are the 5 reasons that can lead to the failure of any business merger:

1. Incapability at Team Resourcing

Companies often underestimate the importance of required resources, especially the human resource. For the deal to be successful, you'll need your best players in the integration team, however, that's not an easy task and businesses fail in this because of the following issues involved:

  • Releasing your best employees from the daily business to join the integration team can take 2 to 3 months at least.
  • You'll need to find and sign up the contractors to fill them.
  • Setting up the team's infrastructure.

2. External Factors and Change in Business Environment

Failures related to mergers and acquisitions can't be solely blamed on the internal issues. Many times it happens because of the external factors as well, such as a change in the business environment or major changes in the economy like recession, or the financial sector collapsing, with mortgage companies being the worst hit. These factors aren't fully controllable. However, taking the help of an expert during the process can help in minimizing the risk, as well as in cutting further losses.

Things You Need to Know About the Mergers and Acquisitions Process

3. Issues Related to Cultural Integration

Companies tend to start their integration process without having a proper and clear strategy for that in hand. By 'clear strategy' it means that you should be very clear about whether to forcefully integrate by setting aside the cultural differences, or to go the softer way and allow the local/regional businesses to run the respective units, but with clear targets and strategy on profit making.

4. Incompatibility with System Integration

Incompatibility issues are common when you're planning to integrate the systems of the acquired business such as its dissimilar ERPs, different accounting practices, document control, email and other related systems. If not supported by strong key internal resources and planning from many disciplines in both companies, outside consultant's help won't serve much.

5. Other Factors That Leads to Failure

Apart from the above mentioned factors, there are some other factors that lead to failure of most of the mergers and acquisitions. They are:

  • If the parties to the merger or acquisition don't share a common vision; not having a clear statement of what the merged company will stand for, and how the organization will operate.
  • Delay in taking some tough decisions required for the success of the integration. They may not please everyone but then it will allow them who do not find the journey and destination appealing to step off.
  • Most chief executives don't know that many critically important and legally permissible works (apart from the ones that are prohibited to share before being under common ownership) can be done while waiting for the clearance by the regulatory authorities for the merger. This lack of preparation hampers the whole process of mergers.

Our attorneys at Keating & Lyden specialize in handling mergers and acquisitions cases.

For help Call us today at (303) 448-8801.

Keating and Lyden

Keating & Lyden LLC was founded by attorneys-at-law, Robert J. Keating, and Thomas P. Lyden and is based in Boulder, Colorado, and Bellingham, Washington. The attorneys specialize in providing legal advice in real estate matters to businesses and individuals pertaining to real estate management and operation including: tenancy in common agreements, partition agreements, real estate financing, homeowner’s associations and land use issues. They also provide the highest quality legal services to small business owners and entrepreneurs.

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