Mergers and acquisitions are, for many companies, the opportunity to make a leap in a business. But some precautions are important so that the decision does not become a big problem.
There are several reasons why companies go through a merger or acquisition process: some need a breath to recover, others realize that growing organically is not the best option and find, in M&A, the opportunity to expand production capacity , acquire a portfolio of customers, or bring new products and services to the portfolio.
This was the case with Smart Fit, a chain of gyms from which it purchased the online exercise platform Queima Diaria to expand its digital expertise; and Magazine Luiza, a retailer that acquired the delivery application Tonolucro to expand its presence in delivery.
Advised by 3Capital Partners , both operations were successful. But what defines the success or failure of such an operation? Keep reading to find out!
Why do mergers and acquisitions not always work?
Many mergers and acquisitions fail or are abandoned because of problems related to value creation, regulations, lack of integration or cultural clashes. That’s why we’ve listed the main mistakes here – and tips to increase the chances of a successful M&A process. Check out:
1. Ignore expert help
Many executives decide to start an M&A process with little (or no) experience in this type of operation, and without knowing how long and complex it really is. To get an idea, mergers and acquisitions processes take an average of six to 18 months to complete. Therefore, the first step is to seek specialized help.
M&A boutiques like 3Capital will be able to help understand the timing and challenges of the business to first assess whether a merger or acquisition makes sense.
It is also the role of these advisors to define and execute the best sales and capitalization strategy for growth, search the market for the ideal buyer or investor profile, maximize the sale value of a company, attract investors and connect businesses that have synergy.
2. Not preparing the company
The merger or acquisition process is tedious and includes a series of processes such as internal and external audits, financial statements, ESG -related details (acronym for best environmental, social and governance practices ), supplier contracts, risk management, projections and several other aspects that need to be considered.
It is necessary to have very complete financial statements in hand, and to prepare to clearly convey to buyers/investors the burdens and bonuses of an eventual merger or acquisition.
Transparency and good communication are key to making the process less time-consuming and more successful.
3. Resistance and culture shock
The mismatch between behavioral norms and values of two companies is responsible for the failure of many mergers and acquisitions. Everything gets worse when there are different views on the promotion of diversity and inclusion policies among employees.
Therefore, in an M&A context, it is important for HR managers to unite in a single purpose, as well as for boards to discuss the potential for integrating cultures and values with regard to hiring and meritocracy.
These policies even begin within the councils. Last year, the US Securities and Exchange Commission approved a proposal that companies listed on Nasdaq , the US stock exchange, have at least two different directors, including one who identifies as a woman and the other as belonging to a socially minority group, such as LGBTI+ or black people. Companies are also required to publicly disclose the diversity of their boards.
4. Failures in the integration of processes and technologies
There is a lot of talk about the clash and interposition of cultures, facilities and functions at the time of a merger or acquisition. But one of the biggest barriers faced has been data integration.
A survey by Dell – Dell Global Data Protection Index – revealed that companies are managing ten times more data than in 2016. It is structured and unstructured data that has immense value, both financial and strategic to the business.
The problem is that since they are used and stored in very different ways between companies, integration can become an issue.
To reduce friction, it is worth considering some measures, such as bringing IT teams into the game at the beginning of the M&A process to map legacy systems, cross data and have a holistic view of the efforts that will be demanded at the time of integration.
Other important measures are evaluating the hiring of third parties for the integration of data and tools and resorting to an independent consultancy to carry out an audit of the two companies.
This care will allow the IT areas to be aligned and ready to integrate technologies that communicate without errors and without jeopardizing the security of companies – another topic that is taken seriously, especially after the entry into force, in Brazil, of the Law General Protection of Personal Data (LGPD).
How to succeed in an M&A operation?
Finally, the tip of millions when structuring an M&A process is to surround yourself with experienced professionals who have expertise in the field and can advise on the right time and the best way to buy, sell or combine businesses that have synergy.
As the writer Bo Burlingham, author of books such as “Small Giants: Companies That Choose to Be Great Instead of Big” once said: “ The end is not creating a successful business. That’s the way. The end is the successful completion of the journey. As climbers always say, the main objective when climbing Mount Everest is not to reach the summit. It’s coming back alive and enjoying the experience of having made it. ”
Counting on former executives and entrepreneurs with more than 30 years of experience and dozens of M&A transactions carried out is something you can find at 3Capital Partners, guaranteeing the best solution for your business: whether it is capitalizing on investors for growth, bringing a partner strategic, or the partial or total sale of the business. Want to know more? Then talk to us here .
