Top 5 Reasons Why Some Acquisitions Fail
If you’re like many international companies, you may be interested in selling your business in the short or long term. However, not every company is successful at the acquisition stage. The Investment Bank website reports that only 30% to 40% of listed businesses ever go through. You may think that nothing can go wrong as long as there is an interested party. Well, you thought wrong. Therefore, it’s in your best interest to be aware of some of the reasons why this happens. Here are a few.
- Poor integration processes
When acquisitions happen, the next line of action is integration. This is when the buying company takes over as the new owner. First and foremost, because these are two different companies merging into one, a smooth amalgamation is vital. Unfortunately, the post-merger integration is not always smooth.
In finding their feet in what seems like confusion, the deal is likely to fail. This occurs due to poor communication channels, weak pre-planning, or an absence of workstream prioritization. Perhaps, if more attention is given at this stage, the post-merger integration process will be devoid of cracks.
- Inexperienced acquisition managers
You cannot underestimate the importance of experienced business brokers. As acquisition managers, their job is to worry about factors that may hinder the process. Therefore, when you are ready to sell, it is recommended to search to find the right specialists. It can be quite a crowded space, but an acquisition marketplace makes it easier and more convenient.
- External factors
These are also referred to as exogenous factors and they describe the phenomenon whereby the selling company has no control over the situation. It sounds unfair, but it’s a reality that many have had to face. Sometimes it is due to political instability or unexpected economic shifts. A classic example is the Covid-19 pandemic.
For instance, in October 2019, Xerox announced its decision to acquire Hewlett Packard (HP) for $34 billion. However, in March 2020, the acquisition deal failed due to the impact of the Coronavirus pandemic. Both companies had no control over what was happening at the time.
- Culture clash
One of the key things to do before a business acquisition is research. This fact-finding mission seeks to uncover every crucial information relevant to the purchase. Unfortunately, the acquisition falls through the cracks when handlers fail to do due diligence. A culture clash is vital to a business acquisition. It is why the buyer takes measures to ensure that the acquired business is similar to its operations.
Sadly, it doesn’t always happen as one would expect. The organizational mismatch becomes a major problem. A classic example was the 2001 failed deal between America Online and Time Warner. Just a year after the $65 billion deal, it fell apart.
- Key employees leave
Usually, before, during, and after a business acquisition, executive management of the acquired company comes under fire. These are key employees whose continuous presence in the company may contribute to business relevance. Unfortunately, many prefer to leave at the tensest moment. Their absence may cause a lack of confidence among the remaining employees. Ultimately, everyone else may think the acquisition may not be a good move at all.
Key persons leaving the acquired company may not be much of a problem. On the other hand, it’s not the same when the buying company experiences it. So, what causes key employees from the buying company to leave? They may have been against the acquisition in the first place. Therefore they may resign based on personal principles, leaving serious management gaps that need to be filled immediately.
To conclude, whenever you’re selling your business, try to be aware of the weak links and loopholes that may cause it to fail.
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