Mergers & Acquisitions For Dummies, 2nd Edition

Chapter 19

Ten Reasons Acquisitions Fail

IN THIS CHAPTER

Avoiding mistakes and hubris when making acquisitions

Thinking ahead to properly plan for post-closing reality

Transactions do not automatically succeed. Just as far too many entrepreneurs think getting investors to pour capital into their start-ups means they’ve crossed the finish line, too many others in the acquisition game think the hard work is completed when the deal closes. An M&A closing doesn’t signal “Conclusion”; instead, it screams “Beginning!” Or at least it should. The real work begins after the deals closes.

Let’s look at some of the reasons that transactions fail.

Overleveraged

Companies being unable to service the debt they took in order to carry out an acquisition is an all-too-common fate for dealmakers. The executives for the buyer might have been bullish at the time of the deal, but when success hinges on everything running smoothly, any sort of hiccup in the economy might be a fatal blow for a company with too much debt. Most lenders require that a company maintain a certain level of profitability, so if the company falls below that level, alarm bells sound and the bank might reclassify the company with the backhanded appellation of “special asset” and when this happens, the company is considered ...