How Past M&A Mistakes can Strengthen New Initiatives
Business owners and executives sometimes look back on M&A transactions that seemed promising but failed to go through. Naturally, you want to limit the amount of time you dwell on past failures, but reflecting on a transaction that never closed can help you prepare for a new sale or acquisition attempt.
If you analyze what went wrong, you may be able to avoid making the same mistake twice. You may even discover that your former prospective buyer or seller is still interested in trying to make a deal work.
Keep a Clear-Eyed View
For a buyer, “the deal that got away” could have fallen apart because it was unwilling to meet the seller’s price. For a seller, the deal might have stumbled in the due diligence phase when the buyer found what it considered inadequate financial documentation.
Whatever the reason a deal died, it’s important to not let this exercise become an excuse to place blame. As you review the circumstances, try to be as objective as possible, even if the truth doesn’t put your company or certain decision-makers in the best light.
Hiring an M&A specialist to conduct the analysis can help reduce bias. And if the other company is willing, consider interviewing the owners and executives who sat on the opposite side of the failed deal’s negotiation table.
Ask the Right Questions
To get to the root of past M&A problems, it’s important to ask honest questions. For example:
Who most wanted the deal? The transaction might have begun as an unsolicited offer that the buyer didn’t really expect the seller to accept. Or, the seller may have been eager to sell but entered into discussions with a buyer whose interest was only half-hearted.
What caused the deal to fail? The transaction might have fallen apart for a specific reason, such as irreconcilable price differences or inadequate financing. Or, it might have suffered many ills — from cultural clashes to poor negotiation skills.
Who was responsible for what? Closely examine the role that each party played in the deal’s collapse. For example, a buyer could have refused to budge from its initial, below-market offer or self-serving deal terms, thus causing the insulted seller to walk away. Or the seller’s failure to produce adequate and timely documentation may have thrown up too many red flags for the buyer’s due diligence team.
Try, Try Again
After you analyze what went wrong in the past, you might decide it’s worth trying to rekindle the relationship. Perhaps the tight credit market or other economic conditions doomed your first deal. They may no longer be a factor now that the economy is steadily improving and the M&A sector is booming.
But before you approach the other party, make sure that the conditions that doomed your deal the first time really have dissipated. If your heavy debt load was the culprit and you’ve merely chipped at it since your original deal attempt, the same buyer is likely to have the same objection.
Also perform some self-analysis. Have the attitudes of you and other key players in the process changed since the first deal attempt? Successful M&As usually require flexibility and compromise, which means you can’t expect the other party to concede every point. If you won’t budge on price, be prepared to offer other concessions to sweeten the deal.
Present Perspective, Future Focus
Past failures can help provide present perspective. But remember that M&A transactions ultimately are focused on the future. If you find yourself thinking too much about what went wrong and how you might patch things up with the original buyer or seller, talk to your M&A advisor. This professional can help you prioritize your goals and get the deal you want.