If you’re considering doing a merger or acquisition in New York, you need to be aware of the risks involved. A recent study by PwC found that over 70% of mergers and acquisitions in New York fail, which is significantly higher than the national average of around 50%. So what’s causing all these deals to go bad?
1. Poor integration process
When two or more companies come together through mergers & acquisitions, a careful appraisal or due diligence must be undertaken to identify the crucial aspects that might affect the deal. For example, the projects and products of the companies involved, the cultures, and impacting bottlenecks. From here, the executives must find a way to ensure efficient integration that accommodates those critical matters through consultation with relevant parties or even outsourcing options. However, the stress that may come with a merger can cause a process to be overlooked, which would eventually affect the business.
Misvaluing the target business can happen for several reasons, such as not fully understanding the company’s financials or overestimating the synergies that can be achieved from the combination of the two businesses. Misvaluing can lead to higher recovery costs that might affect the flow of income needed to keep the business afloat.
3. Lack of communication
Situations such as different expectations about what will happen after the deal closes or a failure to properly communicate changes in strategy to employees could also lead to a merger failure. Getting this integral element of M&A wrong from the onset is the ultimate recipe for failure.
4. External factors
Finally, it’s important to remember that external factors can always impact an M&A deal. These can include changes in the macroeconomic environment or political instability in the country where the target company is located.
If you’re thinking about doing a merger or acquisition in New York, keep these risks in mind. While there are certainly opportunities to be had, the high failure rate means it’s pertinent for you and the other business owner you are combining forces with to be extra careful when planning and executing your deal.