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Major Merger & Acquisition Mistakes and How to Avoid Them

At Chelsea Corporate, we have guided many companies through the merger and acquisitions process. With experience across nearly every sector within the UK and internationally, we have worked with both sellers and buyers at every stage of the sales process.

We understand this process involves time and effort on both sides, with the potential for mistakes. So we’ve rounded up some of the most common mistakes when buying a business, and here are our tips on how to best avoid them.

1. Not being prepared

When getting ready for your first meeting with the seller, it is always best to go in as prepared as possible. Review the available public information so that you can go into the meeting with as much information as possible. In addition, when working with a broker like Chelsea Corporate, we share relevant information with you.

2. Making prejudgements about the business or seller

You want to enter the process clear of any preconceived notions about the company – or the seller. There is the temptation to take biases into the first meeting with a seller, assuming they are less experienced or desperate to sell. You want to use these first meetings to find out as much as possible about the business. Ask the right questions but avoid trying to offer business advice.

Another common mistake is assuming there are no other parties interested – remember, those good businesses are always sought after, so you don’t want to become too complacent.

3. Being too aggressive on price

It is essential not to be too focused on price, especially in the first meeting. Pushing for a reduced price early on in the process can be irritating to a seller. Especially if the business is smaller or family-run and the seller has an emotional attachment to it.

When you reach the negotiation stage, it is imperative to avoid going in with a low offer. Many deals fail in this stage because the temptation is there to get a reasonable price, but a low offer can come across as insulting. Instead, put yourself in the seller’s shoes and make an offer you would accept, and this also leaves you a margin to negotiate.

Another failure is offering low remuneration on consultancy. If the seller stays on with the business after the sale, offer them the salary you would accept.

4. Failing to understand who has the power

You should never enter this process assuming there is an unbalance of power in either direction. For example, assuming the seller is desperate to sell means you may think you are in a better position.

You will have a sense of your power and the strength of your negotiation standpoint, but over-representing a strong hand is undoubtedly bad – but displaying a weak hand is even worse. When in discussions with sellers and businesses, knowing where you stand is very, very important.

5. Asking for a re-valuation with no rationale

Usually, there is a strong seller bias in the valuation of the business. Whether it is because they are sentimental in their opinion on how much their business is worth or outside advisers instil unrealistic expectations about the company.

When working alongside Chelsea Corporate, we provide comparable evidence of similar deals done in that particular sector, so it brings a dose of reality. Another solution is for you as a buyer or a business to have options available. For example, suppose you have a good flow of appropriate targets at every stage of the process. In that case, you are not necessarily prone to being under pressure to deal with a business with unrealistic valuation expectations.

6. Taking too long to respond

While buying a business is a big decision with many aspects that need to be considered, it is crucial not to lose momentum. If you drop out of contact with the seller for long periods, they may think you have lost interest; they may get restless and start looking around for another buyer. So keep the discussions going and connect with them regularly.

7. Not getting the right legal advice

You must have the right advice for every stage of the process of buying a business. Some buyers go in unrepresented, thinking they can do it themselves with a copy & paste agreement. This is not advisable. An M&A lawyer will review the agreement and make sure the documents are fit for purpose.

8. Talking about the deal before it’s done

Not talking about a deal to outside parties during negotiation sounds obvious, but it is a common mistake. Informing outsiders about the deal, especially if one or both companies are public, is a breach of confidentiality. Disclosing information could also cause issues for the business by tipping off an unsuspecting employee and causing unnecessary unrest or letting rivals know that the company is for sale, leaving you open to a bidding war.

9. Contacting the seller’s customers or vendors without permission

Typical failures here are for an overzealous buyer, keen to start and introduce themselves to existing customers and vendors. However, these relationships are a big part of the value of the business, so you want to nurture them. The last thing you want to do is upset existing customers or suppliers by forcing yourself in presumptuously.

The solution here is very simple. Wait until the deal is done.

For more information or advice on mergers and acquisitions, don’t hesitate to get in touch with Chelsea Corporate today. You can reach our experienced team by calling +44 (0) 20 3011 1373 directly, or use our simple online contact form and we’ll get back to you as soon as possible.