How To Mitigate And Smooth Challenges In M&A Transactions Part 1

With insights from David Strempel, Translink International Vice Chairman

The dealmaking process behind corporate M&As can be highly complex, with a significant number of factors that need to be negotiated between the time a letter of intent is signed until the deal is officially closed.

There can also be a great deal at stake for the companies involved, not only financially but also from a reputational and market sentiment perspective. Comprehensive due diligence and ensuring that all governance requirements are met is just the start. There are also countless eventualities that are beyond anyone’s control such as lawsuits, the loss of a key customer and fall in stock price, not to mention the impact of global events such as the COVID-19 pandemic and the Russia Ukraine conflict.

According to the Harvard Business Review, companies globally spend more than $2 trillion on acquisitions every year. Yet studies show the failure rate of mergers and acquisitions can be as high as between 70% and 90%.

Fortunately, the failure rate of medium–size, cross-border M&A transactions over the past decade has not been as high, although many of the challenges and hurdles remain.

In this two-part series, we asked Translink International Vice Chairman and Chairman at Translink Corporate Finance Italy, David Strempel, for insight into these challenges, the advantages of using an advisor and what CEOs need to consider in order to mitigate those risks that are within their control.

The importance of a clear strategy

Having a clear strategy that is communicated to all parties is important to create a win-win situation.  99% of sellers want their businesses to prosper post the sale.  Protecting employment and having a growth strategy post acquisition and the relevant messaging that goes with this needs to be crafted to appease both the seller and the company being purchased. At the end of the day, when the transaction is closed, both the buyer and the seller need to walk away knowing they got what they were seeking to get initially.

Identifying trends and threats

Certain regions globally can quickly go from offering an attractive investment proposition to a less attractive one for a variety of reasons, from pandemic policies to politics. The role of a global M&A advisor is to identify these trends, plan around them and advise accordingly.

The COVID-19 pandemic and the Russia Ukraine conflict are two examples of unplanned incidents that have caused massive upheaval to business and the M&A sector. While these cannot be predicted, they can be planned around and managed.

Identifying opportunities

Often, some of the best opportunities are what we call ‘off market’ opportunities, which sees an advisor approach a company that has not declared their intention to sell and might not even have thought about it. Making that initial contact to look into a company’s willingness to consider opening up their share capital can be an important step in initiating the process.

Navigating the complex journey

From a buy-side perspective, companies are often well versed in the M&A transaction process. For the seller, this might be the only time they conduct this type of transaction, and this comes with a level of inexperience. Navigating this new process warrants respect and patience, and advisors are able to break the ice and familiarise the target company with what the sometimes intensive journey involves.

In the second part of this series, David Strempel will unpack the sensitive dynamics when it comes to personalities and cultures as well as the role of an advisor in managing the transaction process and finding solutions to any challenges or hurdles along with way.