The M&A market is hot again with around $1 trillion of deals announced already this year. That would put us on track for the second highest year in history behind 2007 (recent WSJ article).

The article summarized why acquisitions are so compelling for US acquirers:

  • Board Room confidence
  • Low interest rates
  • Strong share prices
  • Cash rich balance sheets
  • Demand for new earnings sources
  • Margin improvements
  • Strength of dollar

But let’s be careful out there. Acquisitions fail to add value in a majority of the time as supported by research I’ve reviewed over the years from Deloitte, PWC, and Cass Business School.

10 Biggest Mistakes

These are the biggest mistakes (in order of the deal process) based on my experience, the research and anecdotally from practiced acquirers:

  1. Strategic direction is ill conceived leading to bad target choices, bad deals and buyer’s regret.
  2. Acquisition team members are confused on their roles, leading to an unfocused team effort and missed opportunities to spot dangers/issues. These issues could have been addressed earlier but now start to undermine the success of the integration e.g. pension issues, staff moral, product quality etc.
  3. First contact with the contact is botched leading to an uneasy atmosphere throughout the process, and despite the fact the deal is completed, trust is never truly achieved.
  4. The target is far more reliant on the owner than first thought, leading to a decrease in value post acquisition as the owner moves on.
  5. The post acquisition integration plan (and this is the biggest mistake) is considered way too late in the process instead of prior to target contact.
  6. Deal structures involving earn-outs are badly structured because they do not capture the phycology required from the deal. Length and formulas used are often ill suited to the post acquisition integration plan.
  7. Earn-out structures are not clearly articulated in the Sale & Purchase Agreement leading to recriminations post completion.
  8. Due diligence is focused on the past instead of validating the post acquisition integration plan.
  9. The opportunity to capture the hearts and minds of the seller’s employees who don’t own shares is lost. Either prior to the deal closing or post acquisition – the logic of the deal is never explained to them leading to fear, uncertainty and doubt.
  10. The post-acquisition integration plan is not driven by a point person, who is charged with making it a glorious success.

My new book, The Acquirer’s Playbook will be published in June. It will address all of these 10 mistakes and dozens more!