The Hidden Risks of M&A: What to Watch Out for in Your Deal

As a business owner, there are many reasons why you might be looking to sell your business. One reason may be that you’ve reached the end of your career and are searching to secure your company’s legacy and set your employees up for future success. Another could be that you’ve grown the business as far as you can and need a partnership to scale. Whatever the case may be, M&A can offer appealing and lucrative opportunities for business owners.

But like any large change in life, it’s important to think carefully about M&A and remember that the process is not without risk. Whether it’s a culture clash or regulatory limbo, there are plenty of factors that can turn a seemingly great idea into a headache. The team at Symmetrical guides sellers through every step of the M&A process, helping them avoid common pitfalls that can derail a deal. Here’s what to watch for — and how to navigate potential challenges in advance.

Cultural misalignment

Ensuring a cultural fit between the buyer and seller is one of the most important predictors of an M&A deal’s success. This isn’t just an abstract question of “fit”; it can have a tangible impact on your bottom line. According to McKinsey research, companies that effectively manage culture are much more likely to reach their target revenue synergies than those that don’t. (The study found that 74 percent of businesses with effective culture management met their post-deal revenue targets, compared to just 48 percent of those with ineffective culture management.)

How can a business owner proactively avoid cultural misalignment during a deal?

Analyze work habits: Acquisitions tend to work better when both sides of the transaction have similar work habits. If one company has a top-down leadership approach and another has a more deliberative approach, this could be a sign of cultural challenges after a deal. During the due diligence process, be sure to make sure your work habits and structures are actually compatible, which will minimize employee disruption and ease the post-deal transition.

Have honest discussions about culture: No two firms are going to have identical work processes or corporate culture. That’s why it’s important to have honest discussions between buyers and sellers about the culture you’re trying to build after the deal. By having frank discussions during the negotiations, corporate leaders can help shape the new business culture after the acquisition — and prepare for these changes ahead of time, which helps increase employee buy-in.

Operational disruptions

Ensuring a cultural fit between organizations will help lay an important foundation for minimizing operational disruptions. But it takes more than just a cultural match to ensure a smooth post-deal transition. Corporate leadership on both sides of the transaction should work together during the due diligence process to understand the other side’s business operations and build a detailed integration plan. Workflow patterns, IT systems, and corporate structure are all key elements to consider for this plan.

Ultimately, by being honest about your business’ strengths and weaknesses, you can use the acquisition to achieve new synergies. When done correctly, an acquisition can not only avoid operational disruptions but also strengthen business operations.

Legal Complications and Delays

Delays are often a fact of life in M&A deals. McKinsey reports that 30 percent of the 50 largest global acquisitions over the past two years experienced some kind of delay. For a smaller transaction, a delay is arguably even more disruptive. Not only could it jeopardize the transaction, but it allows competitors to take advantage in the marketplace.

Many different types of legal complications can arise over the course of a deal, including antitrust regulation, contractual (dis)agreements, and deal structure. Once again, the key to avoiding falling into a trap starts during the due diligence process. Try to envision specific complications and delays ahead of time and develop contingency plans. It may be impossible to avoid all delays, but with a little foresight, they can go from being a deal’s fatal blow to merely a short-term nuisance.

We have years of experience helping business owners navigate successful acquisitions and understand the risks involved at every stage. Our team can serve as a valued, experienced counselor as you navigate the specifics of your transaction. Connect with us today to learn more about how we can help make your M&A deal smooth sailing.