In preparing a M&A deal, certain groups or individuals may want to see the deal through no matter what.
Banks, consultants and advisors: They all take their share of the deal, and have a legitimate interest to make their piece of the cake as large as possible. However, if a deal falls through, they may still write a few bills, but the lion’s share of the gain is gone; their resource investment is largely in vain.
Other stakeholders may fear that they will lose face or credibility if their proposal to acquire a certain business was rejected. Yet others may view an acquisition as their very own and personal undertaking, and will not support a decision that would mean a stop to their pet project.
The truth of the matter is that rejection of a potential investment due to failed target criteria conformity is a sign of strength, rather than of weakness. Strong leaders and managers stand out in adverse conditions and rather take a moment of heat than carry the long-lasting consequences of a failed project.
A common strategy to prevent the “Just get it done!” M&A pitfall entails the upfront agreement of certain rules in deal sourcing and preparation, for example:
- Monitor more than one potential M&A target
- Discuss the possibility of saying “no” prior to due diligence, and be ready to say it if needed
- Enable an open pro/con discussion, for example by setting up a “play” like this one featured by M&A Science.
- Define the target financial outcome as part of a structured M&A program.
- Use a defined financial model. Do not change it in the process.
- Invest into a professional due diligence, and include potential legal/technology risks in the assessment. Confirm asset values independently.
- Perform extensive impairment tests on immaterial assets
- Do not rely on external consultants only, and build internal capabilities