The merger and acquisition process can be 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 so we 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 else you wouldn't buy it. But profit doesn't turn into cash for 60-90 days in most cases.
2. Digging in to win at all costs. Make a list of your top 10 things you want and if you get 6-8 of them in a deal 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, but focus on all facets of the operations and 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 m&a 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 3-5 years, almost always they won't last long working for you.
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 with employees/clients. 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 #1 reason transactions don't end up having the results companies expect. Plan for this long in advance and make sure it's a fit.
To learn how to not make these mistakes and make the M&A process a successful one - contact our Capital Advisors at LBA Haynes Strand today!