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How to Effectively Manage Risks in M&A Transactions


Mergers and acquisitions (M&A) can be convoluted and time-consuming transactions, and countless issues could crop up at many points during the deal. This is true irrespective of the value or complexity of the transaction, as there are always a ton of details to iron out for any firm purchasing or joining forces with another. There is obviously no way to avoid every potential issue, but there are certainly steps that can be taken to significantly reduce their likelihood and/or impact. Here are some of the most important ways to effectively manage the risks inherent in M&A:

Avoid Prolonged Negotiations and Turn Around Times

There is a reason that the words “time is of the essence” make there way into tons of different agreements, especially contracts and documents intended to bind parties and induce quick actions. For one thing, time is a limited and precious resource, and time lost in business usually entails money lost. In addition, the longer that a transaction drags on, the more likely it is for additional issues to arise. And, when it seems like the end is never truly within sight, there is a fairly good chance that one of the parties to the deal will lose interest and turn its time and attention elsewhere.

Obviously, no one wants to or can afford to devote a bunch of time, money, and resources to a deal that will just end up imploding. For startups and small businesses, in particular, this is a costly risk that could prove disastrous. For this reason, it is imperative to move things along as expeditiously as possible. This means figuring out how to compromise to avoid stalling the process and fulfilling requests for information and documents to ensure a rapid exchange of information. The latter activity requires some preparation in advance, so establishing a corporate repository that can later serve as the deal room is a great way to ensure that information is organized, which will inevitably facilitate the speed of things later.

Make Conservative Financial Calculations and Projections

In addition to incessant delays derailing a deal, there is always the very real possibility that the numbers will change or not make sense. This may be due to matters beyond the party’s control, such as due to the passage of time and a change in the business or economic climate. However, it is far more likely to occur when the initial calculations and projections were simply overstated or inappropriate in some way. This sort of mistake may be sneaky yet intentional finagling in the hopes of securing a better deal or it may be due to an overly ambitious and optimistic outlook on a company’s trajectory. Clearly, it is beyond foolish to inflate numbers, but even if a realistic projection paints a very pretty picture, it still may be wise to pare things down a bit. It is usually best to rely on conservative figures and then exceed expectations than to misrepresent the situation and have everything fall apart.

Keep Running the Business Well

During complicated transactions like M&A, the leadership teams may become so embroiled in the details of the deal that they begin to neglect actually running their businesses. It is understandably difficult to adequately attend to many competing matters during a time like this, but this sort of oversight could end up being the very reason that a deal does not close. After all, decisions to acquire or merge with another business tend to be based on strong performances on both sides. If either business is not run as well as it was leading up to the decision to proceed, this could affect revenue, profit, and even the company’s reputation and goodwill. There are obviously only so many hours in a day and one person can only do so much, so in order to keep things running smoothly, it may be necessary to hire additional personnel or external assistance.

Communicate Effectively and in a Timely Fashion

Problems are unavoidable. The key to surviving them obviously comes down to how they are handled.There is perhaps nothing more important than timely, effective communication during a situation that requires collaborative problem solving. Ignoring an issue, downplaying things that are going on, or failing to communicate will undoubtedly make any issue a whole lot bigger than it ever needed to be. It is absolutely critical to tackle problems head on the minute that they are recognized and to keep everyone in the loop as this is being done. Transparency and prompt communication will prove vital in helping to get the deal closed.

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