Acquiring or merging with another company can create significant business opportunities unlike any other. However, both are highly complicated, and many are unsuccessful. When faced with the possibility of merging with or acquiring another business, it’s important to consider some of the more common reasons why these arrangements sometimes fail.
Reliable, complete, and accurate data is the key to any successful merger or acquisition. Financial statements, proprietary information, and contracts must all be made available for review by the entity proposing the transaction. Environmental, tax, and employee liabilities, if not fully fleshed out, can sink an otherwise promising transaction. Never close a deal if your advisors have not fully addressed each and every item on your due diligence checklist. Sellers must be meticulous in compiling and maintaining this essential data, and potential buyers must carefully vet what they are told of an opportunity through performing complete due diligence.
In some cases, joining or absorbing another company may not be logistically realistic. The cultures of the businesses may be too difficult to harmonize, and operating standards may not align. Some transactions require relocation to another state or country, presenting difficulties in understanding unfamiliar regulatory environments and eroding employee goodwill from an unpopular, imposed relocation.
It is important to not overlook these logistical or “soft” details of a proposed merger or acquisition, because they can sink a venture just as quickly as a flawed business model.
U.S. antitrust laws prohibit business combinations that would create an anticompetitive environment. To prevent anticompetitive transactions, the Federal Trade Commission and the Department of Justice must review and approve deals valued at $94 million or more. A proposed merger viewed by the government as having an anticompetitive effect may be rejected.
Merging with or acquiring other businesses necessarily involves lots of pre-closing details and obligations, which must be expertly articulated in a set of definitive closing documents. The countless hours spent in negotiation, discussion, and analysis, and drafting of an agreement (including the toll extracted by frustration, anger, hope, and eventually exhilaration) all go by the wayside in the hands of an inexperienced scrivener hired to paper the transaction.
Knowing why mergers or acquisitions fail, and making informed decisions throughout what can be a long process, can prevent costly oversights. Contacting a lawyer at the beginning of a desired transaction can better ensure its success at the end.
To avoid an unsuccessful transaction, prioritize thorough due diligence, and seek guidance from a team of experienced attorneys at the earliest stages. Above all, invest a few dollars more per hour to hire a seasoned attorney experienced in business transactions to document what is likely the biggest deal of your life. . . . so far.