Unlike virtues no one sin is any more dangerous than another in an acquisition process but certainly the sum of the total is so much worse than the separate parts. Of course 101 things can go wrong in a deal but these are my top seven to avoid. Some are easier to manage than others, some unforeseen: either way forewarned must be forearmed.
Paying too much
We may call this deal fever! Where the buyer is so determined to buy the business, either because he doesn't want anyone else to have it or because he has, by now, spent so long and spent so much money looking at it that, in his mind, it's not worth turning back. Start with a top price in mind and only justify increasing that if you can't truly ‘hand on heart' and in the ‘cold light of day' be certain that it's worth the increase and more.
Post deal cultural integration
More than 50% of all deals fail to add value to the acquirer for a multitude of reasons, but in my experience this is because they have not planned a properly managed integration of two major cultural factors - people and systems. The best companies have mixed team integration task forces, for a small deal this maybe not be practicable but do this planning before you complete the deal, not afterwards.
Synergistic surplus overkill
The truth is no immediate savings will be made even in the first year, never mind the first six months. Entrepreneurs are naturally optimistic, two + two always makes five, and sometimes on a good day six! Serial acquirers know that actually in an acquisition two + two usually makes three and build this into any modelling to value the acquisition.
Unworkable deal structure
It's tempting and potentially very gratifying in this debt scarce to structure deals based on performance of the business post acquisition. The trouble is these are fraught with complications in terms of monitoring and, if not ironed out properly at the negotiating table and scrutinised by the lawyer in the sale and purchase agreement, doomed to interminable post deal debate and substantial costs to remove issues never properly considered by both parties anxious to get the deal away.
Unacceptable negotiating tactics
Whether its brinkmanship or taking a condescending attitude towards a vendor, although this may initially bring in a more financially favourable deal, these tactics often create such bad feelings between the buyer and seller that I have known what has been a perfectly willing seller walk away from a good deal.
Letting your lawyer negotiate commercial issues
Never let a lawyer negotiate a commercial element of your deal that is not what their role is and they were certainly not trained to do this. Their job is to protect what you agree and point out pitfalls - make sure they do that and only that.
Letting the real value of the business exit on exit
Nine
times out of ten its within the people of the business you are
acquiring that the real value rests and not just the senior team Though
that is an obvious group that should be considered whether you use
golden handcuffs or something more subtle , it is often further down
the chain that corporate value can be lost as those loyal staff who
have just got on with their job in the same efficient way as always
simply back out of the door through neglect rather than anything
particularly sinister.
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