Understanding M&A Pitfalls and the Role of Expert Advisors

According to research by McKinsey & Company, about 10% of all larger mergers and acquisitions (M&A) fail to materialise into successful ventures annually – highlighting the complexity of conducting these transactions. As a seasoned M&A advisor with almost 25 years of experience, Jari Lauriala, Partner at Translink Corporate Finance Finland, provides valuable insights into the factors contributing to M&A failures and how expert advisors like Translink Corporate  help mitigate these risks.

Setting clear expectations and thorough planning

Lauriala emphasises the importance of having a well-defined and well-planned process, especially for sell-side clients. “One of the primary reasons M&A deals fail is the lack of thorough planning from the outset. You should know what you want as a seller – your valuation expectations, preferred buyer types, and any potential concerns from essential employees.”

He says advisors should act as intermediaries, minimising the time owners spend on the process while keeping them informed. Closely monitoring the target company’s financial performance and ability to meet projections during the M&A process is also critical for instilling buyer confidence and increasing the likelihood of a successful deal.

“In this regard, Translink ensures a detailed project plan with strict timelines to ensure the process stays on track. “By investing time upfront to discuss goals, objectives, and potential hurdles, advisors can help clients set realistic expectations and reduce the risk of misalignment during the transaction,” he adds.

Balancing owner involvement and advisor expertise

In addition to planning, finding the right balance between owner involvement and leveraging the expertise of M&A advisors is crucial for a successful deal. Lauriala says owners should be engaged in the process, providing valuable insights and making critical decisions. However, over-involvement can lead to delays and complications.

According to him, this is where advisors act as intermediaries, limiting the time owners spend on the process while keeping them informed through regular reporting. “Advisors should be a kind of middleman, making sure that the wrong signals don’t go to the owner and take the hit for the owner if there would be discussions with buyers that are not happy with something.”

By striking the right balance, advisors ensure that owners gain the necessary knowledge and experience without getting bogged down in the minutiae of the transaction.

Monitoring financial performance and meeting projections

The target company’s financial performance is critical to any M&A deal. Signs of underperformance during the process indicating that the company is not meeting projections can be detrimental to the entire transaction. “The worst thing for the whole process is picking up signals that the company is not meeting its projections,” Lauriala warns.

Lauriala says Translink is meticulous about monitoring financial performance, typically looking at historical data from the past three years and projections for the next 12 months. “During the M&A process, which can take six to nine months, Translink provides monthly updates to buyers, demonstrating the company’s ability to meet or exceed budgets. This transparency and proactive approach instil confidence in buyers and increases the likelihood of a successful deal.”

Navigating financial distress and business rescue

Companies experiencing financial distress or undergoing business rescue present unique challenges in M&A transactions. However, Lauriala notes that these situations do not necessarily spell doom for a potential deal. He says an advisor’s expertise helps buyers navigate these complex scenarios by exploring alternative structures and phased approaches.

“An example of this situation would be if a buyer initially acquired a minority stake in the company and injected capital to test the waters. If the investment proves successful, the buyer can then exercise an option to purchase the entire company. This staged approach reduces the buyers’ risk while providing the necessary financial support to the target company. Advisors are well-versed in structuring such deals, ensuring that both parties’ interests are protected.”

The importance of industry expertise and global reach

Lauriala says Translink CF’s success in facilitating M&A transactions stems from its deep industry expertise and global reach. With a strong focus on digital businesses, such as IT, software-as-a-service (SaaS), and high-tech companies, the firm has developed a keen understanding of unique dynamics and challenges within these sectors.

“Translink Finland has witnessed a shift from traditional industries like pulp and paper to a thriving B2B and high-tech ecosystem. So, our Finnish Translink team has been at the forefront of this transition, working with innovative companies and investors to drive growth and value creation.”

He adds that Translink CF’s global network allows it to connect clients with the right partners and opportunities across borders. This international perspective is invaluable in today’s interconnected business landscape, where cross-border M&A deals are increasingly common.

The trusted partner in navigating a complex M&A landscape

M&A transactions are inherently complex, and the path to success is often filled with pitfalls. However, understanding these challenges and leveraging the expertise of specialised advisors like Translink CF can make all the difference in achieving a successful outcome.

Lauriala concludes, “By setting clear expectations, thorough planning, balancing owner involvement, closely monitoring financial performance, navigating financial distress, and tapping into industry expertise and global reach, Translink CF helps clients navigate the intricacies of M&A deals. With a track record of success and a deep understanding of the ever-evolving business landscape, Translink CF is well-positioned to guide companies and investors through the M&A process, turning challenges into opportunities and creating value for all stakeholders involved.”

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