Posted on: March 15th, 2017
You have closed your M&A deal, but instead of celebrating the new partnership, you are experiencing a sinking feeling. Deal remorse is a very real phenomenon in the business world.
Often felt after the final documents are signed, deal remorse involves feelings of regret and uncertainty. When it comes to deal remorse, an ounce of prevention is worth a pound of cure.
It is more prudent to prevent deal remorse that it is to suffer its consequences. Here is a list of the five most important questions that if answered honestly will help you avoid deal remorse after the deal is signed.
1. Are you satisfied with the due diligence?
CEO’s and business owners often make the mistake of focusing only on financial due diligence and neglect to conduct sufficient business and legal due diligence. Due diligence requires collecting all the intelligence on the target whether it is objective, hard data or subjective soft data.
The soft data, such as employee attitudes, company morale and overall corporate culture, is not easy to gather. Only by collecting all financial, business and legal diligence should one go forward with the deal.
2. Are you letting emotions get in the way of common sense?
Very often, the stubborn resolve to make the deal work, at any given cost, can cause one to throw caution to the winds. When emotion takes over, the pressure to close at all costs can be great.
Time pressure is often the trigger to emotional decision making, as the longer the deal goes on, fatigue can set in and emotional dynamics take over.
To ensure against this, make sure you have ways of refreshing your objectivity and focus throughout the process. Use a team approach and constantly revisit the strategic reasons for doing the deal in first place.
3. Is the deal in line with your corporate strategy?
Your deal should deliver on your key corporate strategy. Make sure that that the deal does not cause a diversion in strategy for the core business. For instance, if your strategy is capturing market share, then your deal should add to it and not distract you from successfully executing your strategy.
Make sure that you have enough cash and time to be able to integrate the acquisition. You don’t want the acquisition to overwhelm your company’s existing resources – your finances, your human capital and your time.
Opportunity cost is the most expensive part of any deal consideration.
4. Are you satisfied with the cultural fit?
Cultural fit is an often-overlooked aspect of M&A deals, and a main cause of deals failing. A successful Integration depends largely on the integration of the two cultures.
CEOs need to undertake cultural due diligence. Often in middle market companies, loyalty to one person or to a founding vision is a central pillar to the culture. If you knock down that pillar as part of your acquisition integration, you may drastically change the culture, and employee satisfaction will plummet.
Often, little touchstones in the cultural landscape of a company can tell you big things about what is important to the employees. Resist the urge to make strictly dollars and cents financial decisions, at the risk of alienating employees.
5. Is the business trending positively?
Like most situations in life, the trend is your friend. If the business is performing positively and is on track budget wise, then that is a good sign. If the business is struggling and has little sales visibility, then you must be cautious.
Often, when management spends time involved in an M&A process, they can lose track of the day to day management basics and can fall behind a bit. You want to make sure that you start strongly after the deal is closed, because strong growth can absorb any unexpected negative surprise such as employee or customer attrition.
Beware of deals with too many performance excuses close to the finish line.