Which challenges are frequent acquirers facing today?

This blog is in the Top 25 M&A blogs worldwide according to Feedspot

Acquiring companies face numerous challenges that can vary depending on deal specifics, the industry, the specific companies involved, and the current economic climate. However, here are five top challenges that frequent acquirers often encounter today:

1. Integration Challenges: After the deal is signed and closed, the real work begins - integrating two different companies into one. This includes merging different company cultures, systems, and processes. An unsuccessful integration can lead to a decrease in productivity, loss of key talent, and can ultimately undermine the planned synergies of the acquisition. A Harvard Business Review study found that between 70% to 90% of acquisitions fail, and poor post-merger integration is often to blame.

2. Valuation and Price: In today's competitive acquisition market, high valuation is a considerable challenge. With an abundance of capital chasing a limited number of attractive targets, prices are driven up, making it challenging for acquirers to realize a return on their investment. The acquirer must have a clear, realistic view of the target’s value, and how it will contribute to the bottom line.

3. Regulatory and Compliance Issues: Regulatory scrutiny of mergers and acquisitions has been increasing worldwide. Governments are concerned about the impact of acquisitions on competition, consumer prices, data privacy, and national security. Acquirers must navigate this complex regulatory landscape and ensure compliance to avoid fines, legal action, or even a blocked deal.

4. Due Diligence: The due diligence process is crucial in identifying potential risks and liabilities associated with the target company. However, it can be challenging due to factors like time constraints, access to information, and the ability to accurately assess the target company’s financial performance, legal issues, and operational risks. In today's digital age, cyber risk due diligence is also becoming increasingly important.

5. Maintaining Business Continuity: During an acquisition, there's a risk that the focus on the deal can distract from the ongoing operations of the business. Maintaining business continuity is crucial. integration leadership needs to ensure that both the acquiring and target companies continue to meet their business goals and objectives during the acquisition integration process.

Overcoming these challenges requires a well-planned strategy, thorough due diligence, careful execution, and effective change management. Acquirers need to be clear about their objectives for an acquisition and its integration, and ensure that the deal aligns with their overall strategic objectives. It's also important to have experienced advisors who can guide them through the process and help mitigate these challenges.