5 Deadly Sins of Mergers and Acquisitions

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Image by: Tom McMahon
The Seven Deadly Sins, from "Le grand kalendrier des Bergiers," 1496.

Planning on making an strategic acquisition this year? You're not alone. Watch out for these five killer mistakes.

As a lawyer who spends a lot of time providing employment and labour advice, I was interested in a recent Report on Business survey of 152 Canadian C-suite executives. The summary? That, although executive optimism about the economy is waffling, 56 percent of those polled were considering growing their business through acquisitions in the coming year.   

No company will realize the full value of an acquisition without considering all of the key factors. And one of the biggest – why it gets talked about only at the end of a deal, I’ll never know – is human resources.

And so, with apologies to Howard Johnson, CMA, here is my list of five deadly sins to avoid in mergers and acquisitions.  


1) Being passive, not active

Waiting for acquisition opportunities to appear instead of identifying and going after the best ones is an excellent way to miss out on the best opportunities.  Passivity forces you, the purchaser, to adapt your needs to available options; activity allows you to select the best fits with your own culture, values, and strategic vision. This, in turn, enables you to merge two cultures while avoiding the loss of key employees, and maximizing the potential for growth and synergies.
 

2) Inadequate analysis of the target company

Too often the acquiring company relies on representations and guarantees made by the vendor, instead of firsthand understanding of the target company. Due diligence is what enables you ensure the target is a good fit and anticipate integration issues that could arise. Skip it at your peril.  Any integration issues that arise after a hasty deal can lead to unanticipated costs from severances, redundancies, and loss of productivity, clients, know-how, and intellectual property.

3) Believing your own press releases

Dangerous: Relying on the two organizations’ expected synergies without understanding how they might come to be or how much they might cost. If, for example, you plan save money by shedding employees, don’t neglect the severance you’ll have to pay – either directly to employees or indirectly in a higher purchase price if the vendor is taking care of layoffs. Purchasers relying on the prospect of a reduced workforce often don’t grasp fully the cost of that reduction. Further, if those synergies require restructuring of how the company does business, unhappy employees may leave. It bears repeating: They take with them valuable clients, know-how, and intellectual property.

4) Focusing on sticker price, not impact

The cost of the acquisition is important, yes, but make sure you duly consider the impact the transaction will have on the target company’s business and employees. Being fixated on the lowest price or grinding the vendor to a number of concessions often leads to prolonged negotiations, which upset the target’s personnel and business operations. Rumours of a pending sale – with its attendant uncertainties – can debilitate employees. Also, if you’re relying on the vendor to stay on in some capacity after the closing, you should consider his incentive for ensuring a successful transition. One good method is ensuring that vendors have additional compensation tied to the successful integration – this makes it more likely you’ll receive effective transitional management.

5) Poor integration

This is the biggest reason acquisitions fail – and it’s common. So much time and focus gets spent closing the transaction that purchasers can lose sight of the importance of planning for the transition is overlooked.   Don’t make this mistake. Differences in culture and management can create problems in both companies – and these are issues you won’t see until you’re on top of them. Even absent overt rebellion or pushback, resistance can sabotage the integration, resulting in unexpected costs and losses.  

In my next post, I’ll expand on these issues and discuss some strategies to minimize the negative effects of committing these “sins.”


 

This blog is written by Nicole Byres of Clark Wilson LLP and made available by BCBusiness to provide general information on employment law, and is not a substitute for competent legal advice from a lawyer licensed to practice in your jurisdiction. Neither the reading of this blog nor the sending of unsolicited comments or emails creates a lawyer-client relationship with the writer or Clark Wilson LLP.



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