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Mergers and acquisitions refer to the consolidation of companies or assets through financial transactions. It’s the process of combining one company with another.
Merger - the combination of two companies. The result is a new legal entity that operates under the banner of one name. An example would be the 1998 merger of Exxon and Mobil.
Acquisitions - when one company purchases another. The company that’s been bought doesn’t cease to exist or change its name. Instead, it’s just owned by the parent company. Think Disney acquiring Marvel.
Now you know what each term means, here's what else you need to know about mergers and acquisitions and how to overcome the challenges.
Why Mergers and Acquisitions Can Be So Frustrating
Both mergers and acquisitions are complicated processes that can fall apart at a moment’s notice. Although multiple parties are working together to try and achieve the same outcome, the financial and strategic impact on those involved can cause problems. Here are some of the most common reasons behind the failure of deals of this kind.
1. Poor Communication
Like with any business deal or transaction, communication is key. From the outset, it’s vital for everyone to be on the same page and is aware of the type of merger or acquisition taking place. Head to this blog for a quick guide to the different types you might encounter.
If the purpose behind the merger or acquisition isn’t communicated to all those involved, then problems can soon start to surface. Make sure everything is crystal clear to stakeholders, employees and anyone else who might need to know so everything runs as smoothly as possible.
2. Failed Negotiations
Although all parties are trying to achieve the same thing, if either company feels as though they’re getting a poor deal, they’ll pull the plug. Even something as simple as paying too much for the acquisition can lead to problems down the road.
It’s a balancing act and compromise is required on both sides. Otherwise, negotiators will hit a roadblock they can’t overcome.
3. Issues With Integration
The real work begins once everything is signed on the dotted line. Bringing together two disparate teams who have conflicting ideas and processes is no easy feat. Successful integration requires a lot of work, energy and patience - things that are often in short supply.
For more information on successfully bringing together companies and teams, head over to this blog.
4. Outside Influences
Even if everything’s gone perfectly, there’s always the chance failure will be caused by something completely out of your hands. Even some of the largest mergers and acquisitions of all time have had to carefully navigate external factors that were out of their control.
The 2008 Financial Crisis and the current COVID-19 pandemic are just two examples of outside influences playing havoc with even the best-laid plans.
5. Cultural Problems
Even within the same industry, two companies can have completely opposite processes, approaches and cultures. Fail to marry these effectively and the merger or acquisition will be in danger of collapse.
Add to this the complications caused by acquiring a business from another country. Time zones, language barriers and cultural customs can all create serious headaches. To help, we’ve created a blog for any organization considering an international acquisition.
In short, financial deals of this kind are always complicated. Both internal and external factors can derail the whole process so it’s important to prepare in the best way possible. Plenty of major organizations have fallen foul of some of the challenges raised in this blog so we’d recommend learning from their mistakes.
Our Guide to Mergers and Acquisitions
We’ve looked at some of the most high-profile failed mergers and acquisitions in recent years to determine the common pitfalls that you’ll need to avoid if you plan on heading down the same path.
Our free guide outlines why others have failed and what you can do to ensure a positive outcome (Hint: Global EORs). Get your copy now using the link below and start planning a successful merger or acquisition.
