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What causes an unsuccessful merger and acquisition?

On Behalf of | May 10, 2024 | Business Law

When companies join hands and merge, the initial goal is to be more profitable and successful in their industry. However, achieving this goal involves an intricate process. Failing to prepare for this process could lead to unsuccessful mergers and acquisitions.

Due diligence is a crucial step prior to M&A

Businesses planning to merge with or acquire another company usually focus on the opportunities at hand. Sometimes, their M&A plans only center on obtaining new products, expanding their reach and gaining new customers. In the process, they could overlook the risks it brings, such as potential excessive costs, financial discrepancies, environmental hazards and pending litigations.

Both companies must perform due diligence when it comes to valuing their businesses, disclosing financial and legal matters, aligning marketing strategies and agreeing with intellectual property rights. One missed piece of information could lead to unpleasant disputes between business partners.

M&A planning is not just about business aspects

An M&A plan should encompass the overall implications of the business restructuring. Aside from its operational and marketing aspects, it is also crucial to align business values, goals and vision. Workplace culture is necessary for an M&A plan as it affects the company’s human capital. Low employee morale could lead to inefficiency and underperformance, affecting the overall business operation. Changes in the hierarchy and organizational structure could also impact the dynamics within the company, which could lead to power plays. Internal complications could escalate to complex legal action when they are left unsolved.

Seeking legal advice is necessary

Companies considering a merger or acquisition often focus on their growth as a business. However, its implications on the organizational dynamics and legal outlooks are equally important. A business M&A could fail when there are misalignments in goals, values, plans and vision. It is crucial to have a legal professional assist companies planning a merger and acquisition to ensure a fair and smooth transition to this new business undertaking.