M&A Deal Killers & How to Avoid Them
Mergers and acquisitions (M&A) are a frequent and significant occurrence in business-based consolidation. Given the potentially numerous variables in play and at stake — including any number of structural and cultural adjustments — these processes must be navigated carefully to ensure success for all involved.
That said, here are some preemptive solutions for common M&A pitfalls.
Accounting failure is a seemingly avoidable, yet consistent M&A deal breaker. M&A financial success is contingent on having a proper deal structure in place; this makes it possible to adequately incorporate tax information, regulatory approvals, cost levels, and the ways costs will factor into time spent on bringing the deal to fruition. Therefore, it is critical to employ sharp, efficient accounting to avoid putting yourself in an early financial hole — potentially without even knowing it.
Typically, to circumvent such issues, involved entities enter into transition service agreements (TSAs) to cover and streamline invoicing, IFRS reporting, consolidation, and accounts both receivable and payable.
M&A companies should also be meticulous in preventing tax-related errors during transactions. In addition to properly managing tax registrations and compliance considerations, companies and involved tax executives must account for all other tax technical operations — including memos, checklists, work plans — and for all deal-related tax technical aspects, operational needs, and process changes impacting employees inevitably bound to the transaction. If these areas are botched, small as they may seem at the time, they can quickly snowball and create an adverse scenario that may jeopardize the entire operation.
To mitigate tax problems, be sure to involve tax professionals at an early stage; this will only add clarity to the projected integration lifecycle, unfold upcoming key business decisions, and assess the overall readiness and viability of involved entities leading up to day one of the transaction.
The previous section in mind, it is key to hire and empower proper M&A-related personnel before taking matters outside the company. This mistake is seemingly one of the smallest in the spectrum of common M&A offenses, but it can have disastrous consequences including, but not limited to a drop in shares, an overall failure of the transaction in question, and a subsequent series of issues lingering beyond the transaction.
Necessary personnel may include an M&A-literate lawyer (to discuss plans and options), a strong accountant (as previously noted, to effectively handle transaction-related financial matters), communication teams (to establish and maintain transparency and fluid correspondence during the transaction), and PR professionals (to ensure the transaction is accurately managed and reported on a broader level).