There are several common risks seen in merger and acquisition (M&A) transactions. These include:
Overpaying
When an acquiring entity overpays for a target company, they are destroying shareholder value. Avoiding this risk is simple enough, but it requires a good amount of evaluation. The acquiring party must know their overarching goals and strategy, collect information from the target business to develop an accurate valuation, and leave ego out of deal pricing.
Overestimating Benefits
There are often practical reasons why an M&A transaction is the right choice for two parties, but many leaders overestimate when the payoff of such a transaction will become reality. Consolidating two companies takes time and often involves extra costs. The benefits typically won’t be seen immediately after an M&A transaction.
Misaligned Company Cultures
Each party in an M&A transaction has their own company culture. These cultures don’t always work well with one another, thus posing an additional challenge. A strong integration strategy that considers the norms and values of each organization minimizes the negative impact of such differences.
Poor Communication
M&A transactions should never be done in private. Rather, all personnel in both organizations should be kept informed of the terms of the deal and what changes will occur to their working lives. This limits the development of discrepancies following a merger and keeps both customers and employees happy.