Do you know when to walk away from a transaction?
After all that hard work putting together an acquisition —not to mention the costs in both time and money—it might seem unthinkable to give up on a deal. But you should be on the lookout for these 10 warning signs during the transaction process. They may just be telling you to walk away.
- The prospect does not meet your criteria. Always keep your strategic objective in sight, and if the target doesn’t serve your goal, walk away.
- Only your CEO believes in the deal. Your CEO’s enthusiasm for a deal is not sufficient grounds to proceed, if no one else is convinced.
- There is strong dissent on the acquisition team. When the acquisition team is conflicted, the transaction is likely to fail.
- There are glaring cultural differences between the two companies. Some cultural difference can be valuable, but a complete clash of values and business philosophies will lead to trouble.
- The buyer and/or seller are inexperienced, or they lack good advisors. Beware of a transaction conducted by rookies!
- The buyer and seller can’t close an unrealistic valuation gap. Differences of valuation are inevitable, but if there’s no hope of finding middle ground, walk away.
- The valuation doesn’t change…even if facts do. Due diligence may uncover facts that should change the valuation — if it doesn’t change in the light of new data, that’s a bad sign.
- A poorly run auction of a for-sale company. Badly run auctions are a huge hazard and a strong reason to back off from a deal.
- Buying a company only so your competitor doesn’t get it first. If your goal is only defensive, rethink the transaction: there’s far more value in pursuing long-term strategic growth
- An overemphasis on sunk costs. Remember there are few things more expensive than buying the wrong company — so be prepared to cut your losses rather than press ahead regardless.
If you are finding many of these warning signs appear in your deal, you may want to reconsider going through with the acquisition. Take some time to think about it – Is this really the best deal for your company? You never want to execute an acquisition simply for the sake of it; rather M&A should always be carefully planned and strategic in nature in order to maximize your success.