17, May 2021

How to Make Your Next M&A Deal Successful

An M&A deal can be a potentially tricky process that requires a lot of preparation and know-how from all participants involved. 

This starts with preparing all the relevant documents. However, you must also think about how you approach negotiations, any questions that may be pertinent during due diligence, and whether your team will be able to achieve the best deal for both parties.

It is important that you establish a process to ensure everybody is on the same page and knows how to get the deal over the line. After all, there are a number of potential problems that block many M&A deals.

Common problems facing an M&A deal

Some of the most common problems that arise with many M&A deals include:

Poor motive for an acquisition

This problem usually exists before the deal even comes to the table. You should have a good reason for any M&A deal to move forward. If you cannot answer why the deal should take place, you have already run into a big problem.

Targeting the wrong company

If you are planning on going through with an M&A, you should make sure the prospective company will make the right fit. Remember: if you realize that your brands will not fit partway through the deal, backing out can be seen as just as big of a financial success.

Overestimating synergies

Many firms make the mistake of overestimating revenue or savings made after an M&A deal. This overestimation can often be by as much as tens of millions of dollars. This financial loss cannot be easily recouped further down the line, rendering the deal a failure.

Overpaying the other firm

This may be the most common issue facing many M&A deals — overpaying to acquire another firm. This is usually because most sellers will only tell you if your value estimation is too low. You can bet they will keep quiet if it looks like you will pay more than the company is worth.

How to avoid problems

If you encounter any of the above problems, you should follow these tips to ensure everything goes smoothly.

Understand your motives

The best way to get a deal across the table is to understand why the deal should happen in the first place. Establish what you are hoping to achieve as a team and whether M&A is a suitable way of achieving that goal. There could be an alternative plan that gets the same results.

Target the right firms

Make sure you research your potential acquisition. Leave no stone unturned when trying to decide which company will benefit your own firm’s future. Stepping away from the process altogether if you cannot find a suitable deal is often seen as a better alternative than going through the process with the wrong firm.

Remember that conservatism is key

To prevent overestimating synergies or being disappointed by the financial realities of the deal, approach the process conservatively. A good rule to follow is: if you think a deal will save you a million dollars, divide it in half and work with that potential synergy. If you think the deal will still work in your favor with this new figure, it may prove beneficial.

See the value of a firm as the limit

To avoid overpaying for your M&A, view the other firm’s value as a limit rather than a target. This minor change in your way of thinking could potentially save your company millions of dollars. After all, everybody likes getting a good deal.

Final thoughts

These are just some of the most important things to consider when approaching an M&A deal, but they are by no means exhaustive. You should also consider things like the mentality of your stakeholders and whether or not to reevaluate the deal when things get tricky. Follow these rules, and you’ll stand a better chance of striking a great deal — whichever side of the deal you are on.

Top Articles