7 Deadly Sins to Avoid in an Acquisition - Jo Haigh
Unlike virtues no one sin is any more dangerous than another in an acquisition process, but certainly the sum of the total is so much worse than the separate parts.
Of course 101 things can go wrong in a deal but these are my top seven to avoid. Some are easier to manage than others, some unforeseen, either way forewarned must be forearmed, as they say so here we go;
Paying too much
We may call this deal fever! Where the buyer is so determined to buy the business either because he doesn’t want anyone else to have it or because he has, by now, spent so much time and money looking at it that, in his mind, it’s not worth turning back.
My advice; start with a top price in mind and only justify increasing that if you can’t truly ‘hand on heart’, ‘cold light of day’ (etc) be certain that its worth the increase and more! The more being very important indeed!
Post deal cultural integration
More than 50% of all deals fail to add value to the acquirer for a multitude of reasons but, in my experience, this is because they have not planned a properly managed integration of two major cultural factors - people and systems.
The best companies have mixed team integration task forces, for a small deal this may not be practicable but do this planning before you complete the deal, not afterwards.
Synergistic surplus overkill
MD “If we put the two companies together we cut out £1m of costs in the first 6 months all to the bottom line!”
FD “Well im not sure it will happen quite as quickly as that”
MD “Why are you always so negative?! Even worst case its £750k, any fool can see that”
In fact the truth is no immediate savings will be made even in the first year never mind the first 6 months.
Entrepreneurs are naturally optimistic, 2 2 always makes 5, and sometimes on a good day 6!
Serial acquirers know that actually in an acquisition 2 2 usually makes 3 and build this into any modelling to value the acquisition.
Unworkable deal structure
It’s tempting and potentially very gratifying in these debt scarce markets to structure deals based on performance of the business post acquisition (an earn out). The trouble is these are fraught with complications in terms of monitoring. If not ironed out properly at the negotiating table and scrutinised by the lawyer in the sale and purchase agreement, these are doomed to interminable post deal debate and substantial costs to remove issues never properly considered by both parties anxious to get the deal away.
Unacceptable negotiating tactics
Whether its brinkmanship or taking a condescending attitude towards a vendor, although this may initially bring in a more financially favourable deal these tactics often create such bad feelings between the buyer and seller that I have known, what has been a perfectly willing seller, walk away from a good deal in disgust.
Sadly, my own profession is littered with arrogant, card holding, duplicitous and very challenging people who I would never welcome to my team but then I like a fair deal that I feel both parties can live with and sleep at night.
Letting your lawyer negotiate commercial issues
NEVER EVER, EVER let a lawyer negotiate a commercial element of your deal. That is not what their role is and they were certainly not trained to do this. Their job is to protect what you agree and point out pitfalls, make sure they do that and only that!
Letting the real value of the business exit on exit.
Nine times out of ten it’s within the people of the business you are acquiring that the real value rests and not just the senior team. Though that is an obvious group that should be considered whether you use golden handcuffs or something more subtle, it is often further down the chain that corporate value can be lost as those loyal staff who have just got on with their job in the same efficient way as always simply back out of the door through neglect rather than anything particularly sinister.
Jo Haigh
Head of Corporate Finance for MGR
www.mgr.co.uk
Jo.haigh@mgr.co.uk
0844 826 2851 / 0207 644 9674 / 07850 475878
http://www.linkedin.com/in/johaigh