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Why do 66% of M&A deals destroy value?

Only one out of three completed M&A deals are considered accretive to shareholder value.  This ignores the fact that less than 20% of deals cross the finish line from inception and become a completed deal.  The odds are stacked against any prospective acquirer to complete a deal in the first place and then make it work…so what will improve your 6% to 7% chance of getting it done right?

The Right Deal

  • Too often a shareholder rushes out to buy a business, most often to fix some internal problem or avoid some external risk or threat. The first thing that comes along is examined for months and months and sometimes acquired in a hap-hazard process

  • In contrast the right deal requires time and starts with a proper selection criteria that is rigorously aligned to the acquirer's long-term strategy and then a detailed ‘search and selection phase’ is undertaken to find a short list of opportunities

The Right Due Diligence

  • Acquirers can be manipulated by sellers (or their agents) to limit their ability to do proper Due Diligence (DD). This is a huge mistake. Set your DD requirements clearly at the start and stick with it.

  • While financial DD is important, you must also consider competitive analysis, commercial DD, Tax DD, IT DD, HR DD, ESG DD,  Operational DD and many more areas depending on the sector

The Right Agreements

  • The DD is only half the deal.  Documenting it correctly in the Share Purchase Agreement (SPA) and ancillary documents (Shareholder Agreement, Transitional Service Agreement etc) ensures that misunderstandings are minimised and you avoid arbitration/courts

  •  A smart seller or buyer can enhance their value in many ways in the SPA negotiation, through completion mechanisms that impact net assets, working capital as well as warranties and representations

Proper Integration

  • Upon completion the real hard work commences. You have a short window of 100 days to make the most significant changes

  • Your integration plan must cover all the key areas and be rapidly rolled out

  • Focus on the key areas and prioritise.  Have your best people on these areas

  • Win the hearts and minds of new staff members, and your new clients. Communicate, communicate, communicate

If you want to use M&A as a strategic tool, start by recognizing it has a low level of success.  Pick the right opportunity in your own time, run the acquisition process to your full satisfaction, document it appropriately and then rapidly integrate in the key areas.

Frankfurt. DH Corporate Advisory servicing clients across the Middle East, Europe and globally.


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