Top Reasons Mergers and Acquisitions Fail: A Comedy of Errors

Mergers and acquisitions (M&A) are often seen as the ultimate power move in the business world. They convey growth, synergy, and market dominance. However, the reality is many of these deals end up as cautionary tales rather than success stories. Let’s explore the top reasons why M&A deals fail, with a humorous twist to keep things light. After all, if we can’t laugh at our mistakes, how will we ever learn from them?

Focusing only on EBITDA

Imagine judging a book by its cover, but the cover is a fancy acronym. EBITDA is great, but it’s like judging a restaurant by its napkins. Sustainable free cash flows are the real gourmet meal here. Don’t get fooled by the fancy napkins!

Not deconstructing the financials

Financial statements are like those magic eye puzzles. You must squint and look at them from different angles to see the hidden picture. If you just take them at face value, you might miss the dinosaur in the room.

Incomplete management interviews

Management presentations are like dating profiles – they show the best side. Dig deeper and ask the tough questions, like “What’s your biggest fear?” or “Why did your last relationship (merger) fail?”

Not fully assessing the risk profile

Ignoring risks is like ignoring the weather forecast before a picnic. Sure, it might be sunny now, but what about that looming thunderstorm? Look out for customer concentration, SKU concentration, and other storms on the horizon.

Not reviewing the independent accountant’s work papers

Skipping the accountant’s work papers is like skipping the fine print. You might end up agreeing to walk someone’s dog for a year. Those papers hold the juicy details that could make or break your deal.

Not completing a proof of cash

If you can’t be sure of the cash, it’s like playing Monopoly with fake money. You might think you’re rich but try buying Boardwalk with those bills. Reconcile those cash receipts and disbursements to avoid a financial game of make-believe.

Confusing net working capital (NWC) analysis with the net working capital mechanism

Mixing these up is like confusing your left shoe with your right. Both are important, but they serve different purposes. Analyze NWC for cash flow but negotiate the target like you’re haggling at a flea market.

Confusing what a debt-like item is, and is not

Debt-like items are like those sneaky calories in a salad. You think you’re being healthy, but those croutons and dressing add up. Know what’s truly debt-like and what’s just part of the regular financial diet.

Critique of the sellers’ projections

Seller projections can be as optimistic as a kid’s letter to Santa. Verify those numbers! If they’ve never grown faster than 7%, but now they’re promising 15%, ask if they’ve found a magic growth potion.

Forgetting about operational taxes

Operational taxes are like the hidden fees on your phone bill. They sneak up on you. Sales tax, property tax, payroll tax — they all follow the assets. Don’t let these sticky taxes catch you off guard.

How CLA can help with M&A due diligence

At CLA, we understand navigating the complexities of mergers and acquisitions can be daunting. Our team of experienced professionals is here to guide you through the process. From thorough financial analysis to comprehensive risk assessments, no detail is overlooked.

Let us help you turn potential pitfalls into successful outcomes. Contact us today to learn more about how we can support your M&A endeavors.