Due to their drawn-out, complex, and delicate nature, both mergers and acquisitions can involve a number of pitfalls that could break the deal for all companies involved. If your parent company or small business plans to merge with or acquire another company in the near future, it’s important to know what these pitfalls are in order to prevent them from happening. From financial woes to problems caused by poor communication between crucial groups to management issues and more, there are several common risks all parties can face when attempting a serious merger or acquisition. Here are the four most frequent ones, the signs to watch out for throughout the process, and what your company can do to try to avoid them.
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1. Unexpected Financial Problems
As you may have guessed or as you may have already been informed by your business brokers and consultants, financial woes often top the list of issues that can torpedo a corporate merger or acquisition. Unfortunately, poor accounting and a long list of other financial problems can lead one or both parties to pull out of contracts before deals are completed. To avoid this problem, make sure your financial parties do their due diligence and triple-check all figures involved in the relevant contracts. Watch out for unexpected financial issues such as:
- Inaccurate accounting
- Lack of liquid funds to complete the merger or acquisition
- Poor or inaccurate company valuations
- Fraudulent financial reporting
- Various other financial oversights and errors
2. Lack of Transparency and Quality Communication
In any merger or acquisition, two companies are preparing to move under the umbrella of a single company, so it goes without saying that transparency is essential. Unfortunately, opaque replies, slow email responses, and a general lack of high-quality communication can strain the relationships between the parties. The most common communication issues companies encounter during these processes include:
- Infrequent or inadequately detailed communications about the transition
- Lack of range in the number and type of communications channels used
- Lack of transparency, openness, and honesty in company-wide communications during the merger or acquisition process
- A failure to relay crucial information to the right individuals in time to meet certain deadlines
3. Serious Mismatches in Company Cultures
In some cases, two companies hoping to merge, or one company planning to acquire another, may not realize until later on in the legal process that there is a serious mismatch in their company cultures that could lead to workplace problems and uncomfortable environments down the road. Before either party signs on the dotted line, it’s crucial to watch out for:
- Different core values and driving motivations
- Different mission statements and approaches to company branding
- Different short-term and long-term company goals in the business world
- Different attitudes and environments in the everyday workplace
4. Organization and Management Issues
Finally, even the best-planned merger or acquisition may not make it all the way through without qualified and competent management. Organizational and management-related issues plague many companies looking to merge or acquire another. Do a quick audit for:
- Poor upper or middle management
- Unclear or confusing company organizational structures
- Unclear directives from top managers
- Low levels of interaction between manager and employees
- Long response times for important questions by certain managers
Although there are many benefits to pursuing the acquisition of another business or a merger with another company, both processes can also involve numerous pitfalls that could end up breaking the deal for one or more parties involved. However, knowing about these pitfalls could help your company take steps to prevent them as early as possible in the process. From communication and financial issues to a mismatch in company cultures and organizational matters, these common risks could pose a threat to your company’s merger or acquisition. Learn about them and take preventative measures right away.
Also Read: Small Business Payroll: 4 Common Pitfalls to Avoid At All Costs
