Consulting for Small to Medium size Industrial Products companies
Why Acquisitions Often Fail
by Warren Martin, Founder on September 12th, 2013

Pay Attention To The Warning Signs

There are many acquisitions done across the business landscape, but few ever really achieve the expected results at the time of the purchase. This blog attempts to provide the reader with some fundamental characteristics an acquisition should have to go forward, as well as some warning signs that deem reconsideration on moving forward.

Why Do Acquisitions Often Fail?
  • The buyer pays too much. This is probably the most common reason. Historical multiples should be followed closely. If there is a departure from these to the high side, the reasons should be compelling.
  • Poor due diligence is done prior to closing by the buyer. This happens frequently in the buyer’s eagerness to close a deal. Proper and exhaustive due diligence is an absolute if an acquisition stands a chance of success. The buyer must not only know the opportunities, but also more importantly, the liabilities and risks of the company that it is buying. Good due diligence often can prevent a disastrous consequence for the buyer.
  • Culture conflict between the buyer and seller organizations can destroy all the intended synergies. The buyer must recognize this in the diligence process and ascertain if it can be overcome.
  • Overstated synergies by the buyer are another prevalent reason for failure. Investors are expecting one set of results coming from the acquisition and are being greatly disappointed when they get the reality.
  • Things are not going well in the buying company and senior leadership grasps for a “game changer.” This almost never works!

A Few “Must Haves” For A Successful Acquisition.
  • Do not overpay unless there are extremely compelling reasons to do so.
  • Will the acquisition provide synergies that yield new products, better service, market opportunities, geographical expansion opportunities, operational capacity, financial leverage, intellectual property of value? If not, why acquire the business? Beware of buying market share. This often fails because of a changing environment.
  • Perform exhaustive due diligence so that you know what you are buying.
  • Have a detailed integration plan that is executed by your best people.
  • Put your leadership in place immediately so that the acquired company knows how things will be done and what to expect.
  • These are just a few of the reasons that acquisitions fail and a few requirements for success.

Posted in Acquisitions    Tagged with Acquistions, Due Diligence