As the M&A environment is improving, it is important for both buyers and sellers to be prepared by being aware of dealmaking challenges, especially during the critical transaction phase of an M&A deal.
Recent events reveal, the biggest and best deals can fall apart quickly if they are not strategically managed. In an August 6th 2014 article, The Economist reported that one day prior “two of the most talked-about merger plans in American business were suddenly no more”. Faced with varying challenges - the potential mergers resulted in failed deals. The Economist reported that there was speculation that the potential merger of 21st Century Fox and Time Warner - costing $80 billion in cash and shares - deal failed due to Time Warner’s failure to “to explore an offer which was highly compelling” – resulting in 21st Century Fox to walk away from the deal. In the case of Sprint, USA Today reported that T-Mobile “wasn’t enthusiastic about the offer or being Sprint’s merger of last resort”. However, the primary reason reported was regulatory pressures that Sprint would have to face in the wake of the potential merge.
“Dealmaking best practices are important to establish, and it’s essential that both buyers and sellers are armed with the tools necessary to minimize risks, maximize value, and make better business decisions. One way to approach this is to identify the common challenges facing senior level financial executives and industry experts and provide solutions to ensure the transaction is compliant to regulations and meets the buyers’ and sellers’ expectations,” says Richard A. Martin, Jr., Senior Director at Merrill Datasite©
Financial Executives Research Foundation (FERF) and Merrill DataSite® collaborated on a research project which explores the challenges that senior-level financial executives and industry experts, from a buyer’s and seller’s perspective, experience during the transaction phase of M&A. This report “Challenges and Solutions: M&A Perspectives in the transaction phase” is a compilation of dealmaking insight from the technology, life science, and manufacturing industries.
The most common challenge shared by buyers is the roadblocks to accessing critical information necessary to make an informed decision. Solutions proposed were to hire an expert or identify alternative channels to access this information. Other challenges for buyers range from properly estimating the efforts required, dealing with overconfident sellers that don’t live up to expectations, adequately assessing corporate culture of the target, and ultimately having the courage to walk away from the deal if the information retrieved reveals unfavorable results.
On the opposing side, sellers face equally critical challenges including, but not limited to; balancing the day to day efforts and facilitating the M&A deal, being unprepared for divergent buyers, protecting proprietary information, and managing employees. The solutions proposed for these issues included engaging third party subject matter experts, utilizing a virtual data room, and facilitating open communications with staff regarding the pending divestment.
Aim for success in your next M&A transaction by understanding and overcoming the common challenges in dealmaking by downloading the report here.