Top 10 Mistakes in Mergers and Acquisitions

The merger and acquisition process can seem daunting to someone who has no experience and isn’t working with a broker. Over the years we have heard a number of horror stories and have compiled the following list of the top 10 mistakes in mergers and acquisitions:

  1. Underestimating working capital. The company you are buying obviously makes money or you wouldn’t buy it. It is important to remember, profit usually doesn’t turn into cash for 60-90 days.
  2. Digging in to win at all costs. Make a list of the top 10 things you want in the deal. If you get between 6 and 8 of these items, it’s probably a good deal as long as the ones you don’t get aren’t deal breakers.
  3. Skipping due diligence. Don’t focus just on the financial stuff. Instead, focus on all facets of the operations, infrastructure, and people.
  4. Not hiring the right advisors. You may love your estate planning attorney, but if they aren’t active every day in the mergers and acquisitions space, you should find someone who is.
  5. Thinking old owner will be a good employee. An entrepreneur is built that way. If they have been at it more than 3 to 5 years, chances are they won’t last long working for you, the new owner.
  6. Owner financing because you don’t want to pay a bank. Debt is debt. Owing a rational bank that is used to lending money is much better than lending the life savings from the person you bought from.
  7. Changing things fast after the deal. You want to retain the people and clients, so take change slow.
  8. Bad tax structure. In years of acquisition with the right tax planning, you can eliminate a lot of tax with accelerated write offs.
  9. Acquiring without a strategic plan. Don’t just acquire to acquire. Do it with a long term strategy in place for why you want to grow and how this will impact your long term goals.
  10. Culture clash. This is the number one reason transactions don’t end up having the results companies expect. Plan for this in advance and make sure it’s a fit.

In order to avoid these mistakes, contact us for your no-cost consultation. Our Capital Advisors team is ready to help guide you through your next merger or acquisition.