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3 unforeseen obstacles that can derail a merger and acquisition

On Behalf of | May 30, 2023 | BUSINESS & COMMERCIAL LAW - Mergers & Acquisitions

There are several advantages of growing your business through a merger or acquisition. It can increase market share, access to new markets and customers, talent acquisition and operational efficiencies. However, mergers and acquisitions are complex deals with unforeseeable obstacles that can derail the process or reduce the expected benefits.

Therefore, it helps to assess risks thoroughly and have a well-defined integration strategy to make the most out of a merger or acquisition. Below are some of these unexpected challenges and how to mitigate them.

1. Cultural integration problems

When two companies with different values, norms and practices merge, they may encounter conflicts or resistance from employees, customers or stakeholders. It can lower productivity and lead to employee retention issues.

Conducting thorough due diligence on the target company’s culture and communicating the merger’s vision and goals can help avoid cultural clashes. It is also essential to develop a robust integration plan that focuses on building a harmonious and inclusive culture.

2. External risks beyond all control

External risks beyond human control, such as economic downturns, political instability or natural disasters, can pose significant obstacles to merger and acquisition deals. These unpredictable events can disrupt markets, impact valuations and create uncertainty, making it difficult to complete or evaluate a transaction.

To mitigate these risks, thorough risk assessment and flexibility in deal structures are crucial for successful merger or acquisition execution in the face of external challenges.

3. Regulatory compliance issues

You may face various legal and regulatory hurdles that can delay or prevent the merger or acquisition deal from closing. For example, different tax rules or rates may apply to the merged entity, affecting its profitability and cash flow. Similarly, antitrust concerns or legal issues can delay or block a merger.

To avoid regulatory pitfalls, seeking informed guidance before and during the deal negotiation and preparing contingency plans for any such potential issues is advisable.

Protect your business interests

Mergers and acquisitions can offer massive opportunities for growth, but they also entail significant challenges and risks. By anticipating and addressing the potential obstacles that can arise during the deal, businesses can increase their chances of success and avoid costly mistakes.