10 Questions to Ask Before Making an Acquisition

Most mergers unfortunately turn out to be value-destructive for shareholders. A study by professors at Harvard Business School and the University of California, Berkeley, found that more than 70% of mergers and acquisitions (M&A) fail to create shareholder value.

So, if you’re considering an acquisition, what are the ten questions you should ask first?

1. Why invest in this company?

Do you have a clear strategic rationale for why this particular company would be a good addition to your business? What are the key synergies that you hope to achieve?

2. What is the company worth?

Conduct a thorough valuation of the target company, including both its tangible and intangible assets. Make sure you have a good understanding of the potential risks and challenges involved in the acquisition. For example, is the company’s customer base loyal? Does it have any unique proprietary technology?

3. What is the quality of the management team?

One of the biggest risks in any acquisition is that the target company’s management team may not be a good fit with your own organization. It’s important to assess the quality of the management team, and whether or not they share your company’s values.

4. What are the potential cultural differences between the two organizations?

Cultural differences can be a major source of conflict in an acquisition. Make sure you understand the culture of the target company, and whether or not it is compatible with your own.

5. What is the expected impact on employees?

Employee morale can take a hit after an acquisition, especially if there are layoffs or other changes in the work environment. It’s important to communicate with employees early and often about the acquisition, and to address any concerns they may have.

6. What is the expected impact on customers?

Acquisitions can also lead to disruptions for customers, which can ultimately impact your bottom line. Make sure you have a plan in place to minimize any disruptions, and be prepared to address any customer concerns that may arise.

7. What are the potential regulatory hurdles?

Be aware of any potential regulatory hurdles that could delay or even prevent the acquisition from taking place. For example, if you’re planning to acquire a bank, you’ll need to obtain approval from the relevant regulatory body.

8. What are the financing risks?

Make sure you understand the potential risks involved in financing the acquisition. For example, if you’re planning to take on debt to finance the deal, what is the risk of default? Are there any potential covenant breaches that could occur?

9. What are the potential tax implications?

Be aware of any potential tax implications of the acquisition. For example, if you’re acquiring a company in a different country, what are the implications for your own tax liability?

10. What are the legal risks?

There are a number of legal risks that need to be considered when undertaking an acquisition. Make sure you have a good understanding of the contracts involved, and that you’re comfortable with the terms. You should also be aware of any potential intellectual property issues, and have a plan in place to protect your own IP.

An acquisition can be a great way to grow your business, but it’s important to make sure you ask the right questions first. By taking the time to understand the potential risks and challenges involved, you can give yourself a better chance of success.