Reasons Why Acquisitions Fail – 3. Flawed Deal Management

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In my posting on 17 March 2013 I said that I would review and comment on Denzil Rankine’s 20 reasons why Acquisitions Fail

Rankine says that the reasons for failure fall sequentially into the five phases of an acquisition:

  1. Flawed Business Logic
  2. Flawed Understanding of the New Business
  3. Flawed Deal Management
  4. Flawed Integration Management
  5. Flawed Corporate Development

This article examines the third category in the list.

3. Flawed deal management

Why do some firms load the dice against themselves by failing to effectively manage acquisition process? Such failures will undoubtedly significantly increase the risk of failure.

1. Are you paying the right price?

There is no right price to pay for an acquisition. The target company is worth as much as you are prepared to pay. Do you know what the target firm is work to you? Having a good understanding of the firm’s sales and business development capabilities, its target market and its competitors will certainly help you decide on the price ceiling. However, you must set a walk-away price based on a realistic valuation. You might be surprised how often a deal comes back in a different or restructured guise after you have walked away.

You should also be wary of competitive bidding. Is the competitive bid real or is the other firm bidding to push up the price?

2. Does your negotiation strategy reflect the deal?

If the two sides have differing agendas the deal is likely to collapse. Overly aggressive tactics can lead to an unbalance deal and to terms that can be considered unjust. This often results in disaffection of key managers that go on to leave the firm and damage the business.

3. Are the necessary processes and approvals in place?

It can be as difficult to stop an acquisition, as it is to complete one. If internal approvals are not agreed and in place, then there is no measured orchestration of the process. Too hasty an approval can cost millions to slow an approval can cause the deal to stagnate. Target companies and their advisors can also compound the problems due to their inexperience. 

4. Planning the Integration?

Have you considered the integration? Have you prepared an integration plan? Do not leave it to the last minute. Integration is part of the deal negotiation and needs to be managed early.

 You have passed the test on you business logic, built a good understanding of your target’s business, market and competitors; don’t let your hard work fail due to inadequate deal management.

About Peter Borner

Peter is an entrepreneur and successful business leader. Currently leading a consultancy firm specialising in technical diligence for M&A and advising global firms on IT consolidation and migration to consumption based costing through the use of Cloud Technologies.

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