The Challenges of Going Through a Merger and Acquisition Process

Mergers and acquisitions offer opportunities for business growth. They are ideal for reshaping the operations of a company. Through M&A, a company can incorporate better technology, products, and market shares into their activities. 

Mergers and acquisitions also promote penetration into global markets. They are what strategic organizations use to reduce risks and increase business revenue.

But often, mergers and acquisitions fail. It’s common to find big corporations, some with mergers and acquisitions costing billions of dollars, collapsing. At times, it may be due to obvious reasons such as cultural differences. But other times, failing may be due to a lack of information on how to operate the acquired brand.

In this article, we’ll take a close look at the seven challenges of going through a merger and acquisition process and how to overcome them.

7 Challenges With a Merger and Acquisition Process

1. Picking the Wrong Reasons for the Merger

Mergers and acquisitions(M&A) are supposed to add business value. An M&A is meant to do something significant beyond making a company bigger. It’s not supposed to occur as a result of  pressure from executives, but rather a significant M&A needs a motive that will guide a business’ synergies, transactions, and targets. 

To create clear motives, a company needs to research and develop M&A plans before approaching a target company. Through the research data, the firm can confirm if the target is the right fit for them. They can also use the results to create business strategies that ensure success before and after the process.

2.Inability to Integrate all Operations

Integration is probably one of the most overlooked processes in M&A. This is because integration comes after the merger and acquisition process is complete. But based on previous results, it’s evident that early planning for integration plays a key role in the success of the M&A.

Think of it this way: M&A involves the combining of different cultures, routines, and processes. Without clear guidelines on the roles of either team, it may take longer to complete some operations. During this time, there are losses in sales that will eventually hurt the business. 

To avoid this, involve team members in your M&A processes. Encourage leaders from both parties to share ideas. Make sure that every challenge in integration is addressed before the final transfers are complete.

3. Losing the Trust of Key Stakeholders

It’s common for stakeholders to have a special attachment to their original company. Employees, shareholders, and clients find it convenient to deal with the first people they contacted. And just because the management is excited about the M&A does not mean everyone else is. Some may feel left out and out of touch with the process.

It’s for this reason that the executive should listen to stakeholders. Every suggestion from stakeholders may not be relevant to the M&A process, but it highlights everyone’s worries. By listening, you show concern, build trust, and ensure continued collaboration between team members.

4. Cultural Challenges among Team Members

Culture defines teamwork. It’s through the culture that routine, motivation, and development is encouraged in the workplace. Culture is what fits a particular person to a specific workplace and not another. If, for example, your company promotes innovation and dynamic relationships, it will be advantageous to match outgoing and tech-savvy individuals with your processes.

But if, after research, you discover that your cultures are worlds apart, the best option is to cancel the M&A. Merging or acquiring a firm with different cultures increases the levels of conflict and failure.

5. Inflated Value of the M&A process

When M&A happens, companies use the current values to evaluate the cost. Often, the figures do not factor in environmental or employee situations that affect productivity. Also, the seller is unlikely to tell you if you are overpaying for the process.

Because of this, the resulting firm will have to set unrealistic goals to meet targets. Employees will also be put under pressure to reach unachievable goals. Mostly, this results in an overworked team that’s less motivated to give positive results. Finally, your strong team will wear out and want out of business.

To avoid such occurrences, it’s essential to carry out due diligence. Investigate records and get precise figures on the returns of the merger. Have a cushion option that will cover most eventualities along the way. Better still, hire a merger and acquisition financial advisor to oversee your process. With an expert on hand, you ensure that crucial information is applied and heeded. 

6. Language and Law Challenges in Cross-national Mergers

Working in a global environment is interesting. But a merger and acquisition in different countries with diverse cultures is always a challenge. Imagine how hectic it can get to learn new laws and adapt to new cultures.

But through all of this, communication is key. It’s essential to have an intermediary that understands your goals and is committed to seeing you succeed. It’s necessary to involve an M&A advisor to guide you through the legal process from both locations. 

7. Inadequate Information on Opposite Company

Some companies are simply incompatible. Even with the right intentions during the M&A process, the businesses may never work together well. This is especially true for companies that do not understand how to operate the company they are acquiring.

Take, for example, the acquiring of Snapple, a bottled juices and teas company, by Quaker Oats, a Gatorade juice business. Despite a costly purchase price of $1.7 billion, Quaker Oats simply didn’t possess the requisite skill sets for the job. They ended up selling Snapple at $300 million; a significant loss for the company. 

Though the company was able to generate capital gains from other ventures, it’s clear that getting into an M&A with inadequate information could lead to the failure of all your business goals. 

Conclusion

When going through a merger and acquisition process, it’s essential to factor in the challenges. It’s necessary to realize the similarities and differences of both companies, and learn how integration can increase business value. 

In all this, remember that communication is the key to M&A success. Ensure that all employees, M&A advisors, and the legal team are all on board for the big move.

Image source: Canva