This is the second in a two-part series from Calder Capital, a mergers and acquisitions firm that serves Michigan and Indiana.
Acquisitions can be a strategic move to bolster growth. The journey following a successful acquisition contains many potential pitfalls. Harvard Business Review reports that somewhere between 70% and 90% of mergers fail during the post-merger integration phase. Here, we delve into reasons why an acquisition may fail post-close and advice to overcome them.
1. Dip in momentum
Pitfall: Change disrupts momentum. Between the complexities in process and operational changes, employee uncertainty and the learning curve for all involved, it is natural to see a shift in the primary focus.
Advice: It is important to prioritize clear communication with employees, and establish cross-functional integration teams responsible for alignment and adaptation, to ensure a smooth transition.
2: Poor planning
Pitfall: Poor planning can lead to operational disruptions, financial strain and the loss of talent, undermining the merger’s success and potentially damaging the organization’s reputation. Additionally, it may result in missed opportunities for synergies and growth, impacting the long-term strategic goals of the acquired entity.
Advice: It is important to establish a dedicated integration team, communicate the plan clearly to all parties, and continuously monitor progress to adapt and address any challenges that may arise during the integration process.
3. Overestimating synergies
Pitfall: Overestimating synergies in a merger can lead to unrealistic expectations of cost savings and revenue growth, potentially causing financial strain and disappointment if these anticipated benefits fail to materialize as expected. It can also undermine trust among stakeholders and create skepticism about the merger’s strategic rationale, affecting employee morale and investor confidence.
Advice: Be realistic about cost savings and synergies, and have contingency plans in case projections don’t materialize.
4. Poor due diligence
Pitfall: Poor due diligence can result in unforeseen financial liabilities, operational inefficiencies and legal complications, which can significantly impact the entity’s financial stability and long-term success. Additionally, it can erode trust among stakeholders, including employees, investors and customers, leading to a loss of confidence and potential disruptions in the post-merger integration process.
Advice: Invest time and resources in rigorous due diligence to identify hidden risks and challenges early in the process.
5. Cultural integration issues
Pitfall: Cultural integration issues can arise from differences in values, leadership styles, communication and employee loyalty, which can lead to conflicts and resistance.
Advice: Conduct thorough cultural due diligence before the acquisition and develop a comprehensive plan that addresses cultural differences.
6. Customer engagement
Pitfall: A merger or acquisition can affect customer engagement by causing uncertainty and changes in product offerings, customer service and brand identity, leading to potential confusion and dissatisfaction among existing customers.
Advice: Effective communication, a well-thought-out transition plan, and a commitment to maintaining or improving customer experience can mitigate these challenges and ensure a positive impact on customer engagement.
7. Failing to retain talent
Pitfall: Failing to retain key talent can result in the loss of critical expertise, knowledge and relationships. Additionally, talent departures can lead to disruptions in operations and affect employee morale, potentially causing productivity declines and undermining the overall effectiveness of the acquisition.
Advice: To retain valuable talent, prioritize clear communication about their roles and future within the business, offer incentives or retention bonuses, and provide opportunities for career development and growth. Creating a supportive and inclusive organizational culture that values and recognizes the contributions of employees can also help foster loyalty and reduce the risk of talent departures.
8. Communication challenges
Pitfall: Communication challenges in a merger or acquisition can lead to misinformation, rumors and uncertainty among employees, which can result in decreased morale and engagement. Additionally, inadequate communication with external stakeholders, such as customers, suppliers and investors, can erode trust and confidence, potentially impacting the success and reputation of the business.
Advice: It is crucial to establish a clear and consistent communication plan that addresses both internal and external stakeholders, providing timely updates, addressing concerns and fostering transparency throughout the integration process.
9. Financial challenges
Pitfall: Financial challenges can impact a merger or acquisition by straining resources, causing budget overruns and potentially leading to liquidity issues for the business. Additionally, if financial integration and synergy realization are not effectively managed, it can undermine the overall financial performance and success of the acquisition.
Advice: To overcome financial challenges, conduct thorough due diligence, establish a realistic integration budget, and closely monitor financial performance while implementing cost-saving measures and revenue enhancement strategies to ensure the financial stability and success of the business.
10. Acquirer superiority
Pitfall: Acquirer superiority, where one party perceives itself as dominant or superior in an acquisition, can lead to power struggles, resistance from the acquired company, and cultural clashes that hinder effective integration and collaboration. This dynamic can erode trust and create a hostile environment, potentially jeopardizing the success and long-term benefits of the merger or acquisition.
Advice: Emphasize a collaborative and inclusive approach where both parties’ strengths and perspectives are valued. Encourage open dialogue, involve key personnel in decision-making, and work together to create a shared vision and strategy.
Acquiring a company is a multifaceted undertaking that requires careful planning and execution from start to finish. Working with an experienced mergers and acquisitions business broker ensures business owners proactively eliminate issues that may arise after a closed deal. By entrusting experienced professionals, business owners can be confident their business will succeed.
Learn the 10 reasons why acquisitions fail pre-close in the first installment in this two-part series.