What Can Cause An Acquisition to Fail?

An article in Forbes by Robert Sher highlighted 12 common signs of a failed acquisition. We found these warning signs to be very consistent with our own experience in the lower-middle market.

The number one item on the list was M&A skills and experience. A team without significant experience in these choppy waters has a much higher failure rate. Here is Sher’s full list in order:

  1. M&A skills and experience. A history of skills and experience is critical to success for any team.
  2. Cultural differences. The differences in each company’s values, beliefs, work styles and behaviors can complicate integration.
  3. Size of acquisition. When comparing the revenues of the acquiring company to its target, a figure of more than 20 percent can often add complexity and risk to the deal.
  4. Amount of integration required. From operations to financial systems, integration can require a significant amount of work. The extent to which the two companies must integrate can drastically change requirements.
  5. Earn-outs. While earn-outs for the purchased company can be positive, in reality they are difficult to manage.
  6. Operating team’s involvement. In situations where an acquisition is executed by management or ownership and handed to the operations team for integration after having little to no involvement, risk of failure is high.
  7. Murky due diligence. Anything less than a stellar job of due diligence leading up to any transactions can cause significant complications and risk.
  8. The need for unpopular actions. Anytime an acquired company is in distress and in need of major changes, this can have a negative effect on productivity and morale.
  9. Change required of acquirer. If a company makes an acquisition with the intention of changing the course of its own business, morale and productivity will also be impacted.
  10. Visibility of change to customer base. Anytime a deal causes a change to brand identity, complication and risk are added.
  11. Expertise in acquired line of business. When the leadership team for an acquiring company lacks expertise in the business of their target, the risk of failure increases drastically.
  12. Cash available to manage complexity. One of the biggest mistakes that acquiring companies make is spending their available cash on the deal, instead of budgeting for the integration process.

To read the full article, please visit Forbes.com.

Forbes: What Can Cause An Acquisition to Fail?