Without being too technical (…yawn), let’s explore what the term failure means. For an M&A deal, it could be two separate things. One is that the deal doesn’t close. Two is that the deal closes but the combined entities are worth less than the entities were prior to the transaction (yikes). Rather watch? Click here!
On the issue of deals failing because they don’t close, very often it’s because there is a mismatch of expectations between the buyer and the seller. The seller may be looking for a purchase price that is outside market norms or may have unrealistic expectations about the value of their company. On the other hand, the buyer may be trying to do the transaction without sufficient equity or lack the capacity to do the due diligence required to fully understand the risks and opportunities of the deal. When these expectations are not aligned, it can lead to a breakdown in negotiations and a failure to close the deal.
There could also be a lack of expertise that leads to a deal failing. Many deals don’t close because there is not enough M&A expertise working on the deal. Having the right attorney, accountant, and M&A advisor makes a big difference in increasing the likelihood of success. These professionals provide critical guidance throughout the M&A process, including valuation, due diligence, negotiations, and post-merger integration. Without this expertise, companies may not fully understand all the positive and negative components of the deal and may make critical mistakes that lead to failure.
Companies that are considering mergers and acquisitions should carefully evaluate the risks and opportunities of the deal and work with experienced professionals to ensure that the deal is structured and executed effectively. With the right approach, companies can increase the likelihood of success and reap the benefits of a successful M&A transaction.
Ultimately, both parties should feel like the deal is a win-win. The companies together should fit like a glove..or puzzle pieces..you get the point!