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M&A process: 6 challenges you might encounter and how to navigate them

The mergers and acquisitions (M&A) process can be stressful and time-consuming for businesses, shareholders and management teams alike. As with most processes, preparation and organisation is key to ensuring the process runs as smoothly as possible, although challenges may still arise. We have set out below six potential challenges which you may face during the M&A process and some ideas to prevent or mitigate them.

1. Transparency and structure

The M&A process can be drawn out and hit various stumbling blocks along the way which can pushback any anticipated timescales. Such delays can impact on the trust and confidence of the parties involved which is why it is crucial to have a clearly documented and mutually agreed step by step process which everyone can follow as the process unfolds. Having a transparent framework like this in place can help keep control of the process and make it more likely to achieve a successful completion. A well-organised and structured data room can be a really helpful tool to achieve this. 

2. Bad communication

Early and regular meetings between the parties should help to keep the dialogue open and transparent. It also keeps the other side visible during negotiations which will help to quickly resolve any problems along the way. Getting (and keeping) employees on board with the transaction is crucial as they are at the core of any business. If distrust starts to creep in amongst employees, they may start to jump ship leading to value leaking out of the business. It will also make the post-acquisition integration a lot trickier. Again, a data room or online portal can be really helpful in achieving an open dialogue with staff, for example by way of an employee Q&A section to give employees a platform to voice any concerns or provide feedback.

3. Data security

By their nature M&A transactions are document and data heavy. Sensitive information will have to be shared between the parties. This may include commercially sensitive information such as contract and supplier details, intellectual property details, IT system information, highly confidential financial information as well as personal data such as employee details. Keeping this data secure is paramount not only to protect the value of the business but also to ensure compliance with data protection obligations. If using a data room to host such information, you must ensure that you research its functionality as regard to data security, such as encryption protocols, audit trails on activity in the data room and the ability to restrict the copying and exporting of data.

4. Lack of thorough due diligence

A lack of thorough due diligence on the target company can lead to poor decisions to proceed with the acquisition itself, to proceed at an overly inflated price or without adequate legal protection in the deal documents. The risks of this can be mitigated by approaching the due diligence review process in a structured and efficient way. Data rooms often contain an index of documents and folders to help organise the review of the data using a checklist. They can also have Q&A areas where you can ask the sellers for any missing or additional documentation or raise any queries simultaneously with the review of the documents to help make sure you are seeing the full picture. Experienced legal teams can help make the due diligence process easy and efficient as they know what to look out for and can present their findings in a clear and concise report at the end of the review.

5. Post-acquisition integration

This is when the real hard work begins. The deal has been completed and now it’s over to you to keep the target business running at a profit while integrating technology, staff and cultures. The integration process is crucial to a successful M&A transaction and will require time and resource. It is a good idea to put in place a post-merger strategy and dedicated integration team, ideally with the help of a legal team who will be able to anticipate potential hiccups and minimise any unexpected costs.

6. Unforeseen costs

Unforeseen costs can quickly mount up in M&A transactions. There are unexpected deal costs such as inaccurate financial projections or valuations of the business. There are also costs to bear in mind outside of the deal itself such as costs to retain key staff such as pay rises, increased pension contributions, bonuses etc., training costs to ensure employees are compliant with your business’ standards, any additional financial or legal advisory fees, fees associated with re-branding the business, costs associated with integration/upgrades to the target company’s IT systems and equipment.

Next steps

We have highlighted a number of difficult challenges which can be encountered during an M&A process. These challenges can be easily mitigated by making sure you have the right team of experienced advisors on board who can not only guide you through any pitfalls of the M&A process itself but can also help with the crucial post-acquisition integration. Please get in touch with our expert team of corporate lawyers who will be happy to help if you have any questions on the M&A deal process and/or post-deal integration process. Fill out the short contact form below and a member of our team will be in contact.

About our expert

Matthew Shakesheff

Matthew Shakesheff

Corporate Partner
Matthew joined Harper James as a corporate partner in May 2021. He has extensive experience of corporate law and corporate finance matters including: mergers and acquisitions, management buy-outs and buy-ins, private equity and venture capital investments, restructuring, refinancing, shareholder and joint venture agreements and commercial contracts. Matthew has also advised a number of high-profile banks on the corporate aspects of their client’s acquisitions and corporate lending.  

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