Companies in practice often make the same mistakes that can negatively affect the conduct of a transaction. In this article, we will consider the most common mistakes.
The nature of mistakes in business
The deal flow is the fundamental principle of the relationship of any counterparties. In practice, ordinary entrepreneurs use either template contracts or contracts under which they have been working for years. At the same time, the issue of errors arises only when litigation and debate arise between the counterparties, and then everyone begins to read the contracts.
It is worth noting that any mistake is individual in its way and each specific case should be analyzed through the prism of the legal nature of the contract that arose between the parties. In practice, errors in contracts with counterparties can be divided into two categories: technical and legal.
What are the common mistakes?
Let`s analyze the most common mistakes of deal flow on the example of an M&A transaction.
The successful completion of a large-scale M&A transaction is the result of a complex process. The concept of mistakes in M&A transactions is quite extensive, however, there are top 5 basic mistakes:
- Excessive optimism of the participants in the M&A transaction and unrealistic assessment of the company’s value.
- Inappropriate use of resources.
- Ineffective organizational integration and communication difficulties.
- Improper planning and inability to implement the business plan.
- Limited access to up-to-date company information and inadequate data preparation.
When at least one or several mistakes from this list happen, there is a danger of a breakdown of even the most probable M&A transaction. An important challenge for both parties to the deal is to identify areas of “synergy preservation” to avoid “deal fatigue” and post-merger business problems.
One of the reasons why an M&A deal fails is the inability to quickly identify all possible areas of “synergy preservation” (situations in which the merged organizations achieve significant resource savings and increased added value).
Timing is critical, and if all areas of “synergy preservation” are not identified in a short time, the risk of negative sentiment on both sides of the deal increases. If this happens, one or both partners will likely lose confidence in the completion of the process and the transaction will fail.
Controlling access to information ensures the security of data use, which balances the needs of the buyer and seller throughout the M&A transaction. Controlling access to information accelerates the implementation of the decision plan and the implementation of the business plan after the merger. It also offers several unique benefits that provide buyers with the timely and accurate information they need to determine the overall viability of a transaction. It also allows merchants to protect documents from disclosure that may contain confidential or intellectual property information. Otherwise, information is more likely to fall into the hands of competitors, the media, raiders, or other unwanted persons.
From an entrepreneur’s point of view, the value of money in the capital market and corporate spending is constantly changing. Therefore, both buyers and sellers should be able to quickly assess and establish the cost of an M&A transaction, after which it will be clear whether it is reasonable or unjustified.
Buyers want a system that provides quick access to critical, up-to-date company information so that they can better estimate the total value of the transaction. At the same time, sellers need a system that provides them with controlled access to data, which ensures that intellectual property and confidential information used in negotiations does not fall into unwanted hands until both parties agree.