What are the most common mistakes acquirers have made recently in DD?
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As M&A activity has truly picked up more in terms of value in the last recent years, what do you think are the most common mistakes acquirers have made in their DD? Personally, I believe there is a rush to acquire apparently successful companies, but overlooking tax implications and HR fit.
Yes I do agree tax and HR implications seem to be overlooked in many cases when rushing to close the deal. Other issues I have seen are overoptimistic growth forecasts and synergies estimates. I know this is also cultural when looking at valuation with advisors or across many exec/BoD teams but many companies have a tendency to do simple scenario analysis and do never want to consider a big downturn or push sensitivities on the drivers and competitors. I have seen growth rate in the perpetuity going to the sky without considering the ‘physical’ limitations of the market (being the number of potential customers or the infrastructure capacity. For example, a train or a plane can carry a certain number of passengers after you can try to put more trains (then extra costs) or on the roof of the train but it does not work for a plane and you always reach a limit. In some cases people do not want to hear you have reached the capacity of the trainstation or airport and a diminished or downgraded service (in comparison to the business plan) would lead to potential lost revenue or require further capital expenditures. Downplaying the risks or hiding them can also have a big impact (lack of expertise, desire to absolutely close the deal at any cost, etc.)
Not being open minded enough if things go not go as anticipated in DD to think of creative ways to restructure the deal.
I do agree often buyers overlook the most important aspects of Tax DD expectations. Tax is highly technical area differs from country to country therefore clearly need an expert who has sound knowledge and experience. There are more broken deals than successful deals from the perspective of tax DD point of view primarily because of different valuation expectations, some of the deals did not materialize because of this reason. There is also regulatory constraint that could stop the buyer materialize the deal because of their significant market control/share that they are some challenges in getting the regulatory approval. There is also strong aversion to risk and buyers to really want to make sure they are buying the right target or make sure they get into partnership with right people etc. The buyers also lost deals because there is a strong competition for quality targets.
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