Mergers and acquisitions (M&A) involve multiple parties, significant resources, several phases and a multitude of moving parts. Despite careful planning and due diligence, even the best-laid M&A deals can sometimes fall through. Here are some common reasons why mergers and acquisitions fail to materialize and steps you can take to mitigate risk if making plans for a business purchase and sale agreement.

Common Reasons M&As Fail 

There are several reasons why mergers and acquisitions may fall through. Below are a few common ones: 

  • Valuation discrepancies – Differences in how the buyer and seller value the target company can lead to valuation gaps. If the parties cannot agree on a fair price for the transaction, the deal may not proceed.
  • Financial issues – Financial issues can also strain an M&A deal. For example, if the target company’s financial performance deteriorates during the due diligence period, it can raise concerns for the buyer. On the flip side, if the buyer cannot secure adequate financing, it can also derail a deal.
  • Lack of strategy or communication – There is no room for uncertainty in an M&A. If the rationale for the merger or acquisition is not well-defined or if there is poor communication along the way, it can lead to problems both internally and with customers. 
  • Legal and regulatory hurdles – Antitrust concerns, government interventions, or compliance issues uncovered during due diligence can lead to concerns about potential liabilities and cause the M&A to fall through.
  • Cultural differences – Poor culture fit or mismatches in leadership styles or management philosophies between the acquiring and target companies can create integration challenges down the road. If the two cultures are not compatible, it can be challenging to make the M&A work successfully. 
  • Unrealistic expectations – We all want to view the world through rose-colored lenses, but during an M&A, nothing should taint your perspective. When there are unrealistic expectations on either side of the deal, such as overly ambitious growth projections, it can lead to conflict or unraveling of the deal down the road.

 In addition to these reasons, there can also be unforeseen events such as changes in market conditions or other external factors that can impact an M&A deal’s viability. There may also be stakeholder opposition to the deal or a breach of confidentiality. These and other findings uncovered during due diligence can stall or abort an M&A. 

When making plans for a business purchase and sale agreement, going in with eyes wide open and with expert legal counsel at your side is the best way to mitigate risks associated with mergers and acquisitions and increase the likelihood of a successful transaction. To learn more about M&As in Florida and ask your questions, contact us at the Law Offices of Alex D. Sirulnik, P.A. to request a free consultation.