What are the potential issues with mergers and acquisitions?

By Anita Jaynes on 5 August, 2022

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When two companies combine, it can help the new entity boost its market share and profits. The two main ways of achieving this are through mergers and acquisitions. Mergers occur when separate companies combine to form one company. While an acquisition is the takeover of one company by another. There are many complications that can occur during this process, which is why you should always seek expert advice from mergers and acquisition legal specialists. Below, we explore some of the potential issues you might encounter.

Overpaying

One of the most common issues is that you overpay during the merger or acquisition. Calculating a valuation for a business is complex work and involves projections and estimations that might not be accurate – especially when the business you’re buying won’t tell you if you’re overpaying. One way to try and avoid this is by being conservative with your offers: set yourself a suitable value for your acquisition target as a limit rather than an aim. This can ensure that you don’t overspend.

Incomplete due diligence

During the acquisition or merger process, it’s vital that you investigate your target in forensic detail. Incomplete due diligence can result in your missing a crucial detail that comes back to haunt you. To avoid any mishaps, you should ensure a complete check is carried out beforehand and that you have the appropriate seller representations and warranties documented in your agreement.

Staff retention

Even once an acquisition or merger has gone through, there are potential issues that can arise. Staff retention is one area you should prioritise. You’ll need to quickly structure the business in a way that boosts staff morale and retains the best talent in the business. Employees can often feel under threat following a merger or acquisition. You should allay fears by communicating clearly with employees and by building trust. By improving morale in your business, you can boost productivity and staff retention.

Security threats

Mergers and acquisitions can also present security threats to your business. To complete the deal, both parties will be sharing sensitive information. The danger here is that a cyberattack could leave this confidential information vulnerable. Meanwhile, if you don’t have a security plan in place or the right training for your staff, you could end up with crucial data leaks. During the process, you should prioritise your data security to ensure that all parties remain safe during a merger or acquisition.

Mergers and acquisitions can prove to be incredibly beneficial, but they’re also complex to finalise. But by prioritising avoiding the issues above, you’ll be in an excellent position to try and complete a smooth deal.